BUSINESS

Central Bank of Bosnia and Herzegovina expects a sharp Decline in Economic Activity

The Central Bank of Bosnia and Herzegovina announces the second round of projections of key macroeconomic aggregates for the period 2020 – 2022

The projections can be adjusted upward if the epidemiological situation, due to the introduction of the vaccine, significantly improves in the country and the world, already in the first half of the year, resulting in a faster recovery of tourism and related activities. Also, the projections can be adjusted upward if public investments are intensified and some of the long-announced structural reforms are implemented.

The Central Bank of Bosnia and Herzegovina (CBBH) expects a sharp decline in economic activity in 2020. Stagnation will be felt in all the sectors of society and economy, and real GDP growth above 3% is not expected in the next two years. With such moderate growth rates, reaching the pre-crisis level of economic activity is expected in 2022 at the earliest. The previous projection of a stronger recovery in 2021 was postponed to the end of the projection period, primarily due to the intensity of the second wave of the pandemic, but also weaker than expected effect of government spending on economic activity in the country during 2020. The table shows the values of medium-term projections of key macroeconomic aggregates produced in the Office of the Chief Economist of the CBBH.

In the current year, it is expected that only the growth of government spending will to some extent mitigate the decline in the total economic activity, while all other components of the gross domestic product will record a significant decline. Due to unfavorable developments in the labor market, decreasing foreign remittances, reduced lending activity, and declining consumer optimism, a sharp decline in personal consumption is expected in 2020. Only in the case of this component of aggregate consumption, a return to the pre-crisis level is not expected by the end of 2022. In 2021 and 2022, the importance of investments in the generation of gross domestic product is expected to grow, assuming the maintenance of the continuity of public investments. In line with the real economy trends, a slow strengthening of inflationary pressures is expected only from next year.

The publication of the next round of medium-term macroeconomic projections of the CBBH for the period 2021-2023 is planned for May 2021. In future announcements, the current projections for 2021 and 2022 may be subject to stronger revisions if the epidemiological situation does not improve by the end of the first half of next year, and if the negative effects on economic activities of major trading partners are significantly worse than our projected assumptions. The projections can be adjusted upwards, if the epidemiological situation, due to the introduction of the vaccine, significantly improves in the country and the world, already in the first half of the year, which would result in a faster recovery of tourism and related activities. Also, the projections can be adjusted to a higher level if public investments are intensified and some of the long-announced structural reforms are implemented.

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