BQ with grim forecasts for the economy: Economic growth, inflation increase

According to the document, Kosovo's economy has continued to grow during 2025, but at a slower pace compared to the preliminary period.

“Following the quarterly assessments of the Kosovo Statistics Agency (ASK), BPV (Bruto Local Product v.j). Real growth marked 3.6 percent during 2025. Although the growth was positive, it reflects the modemation of economic activity, influenced by developments in the foreign sector, respectively by the negative contribution of import of goods and services. On the other hand, consumption, investment and export of services continued to support economic growth”, says the report, which Governor Ahmet Ismaili has handed over to Prime Minister Albulen Haxhiu, who is also a manager of the presidential post.

It stresses that consumption, as the main component of domestic demand, contributed 3.9 percentage points to real BPV growth, compared to 4.8 percentage points in 2024. Based on the report, consumer growth results in increased financing resources, as well as slow prices.

“Inves contributed by 2.9 percentage points to real BPV growth, compared to 2.1 percentage points in 2017, largely as a result of increased public investments”, the report says.

As for the external sector, the CEC has stressed that net exports negatively affected economic growth by -3.1 percentage points.

“Export of goods and services positively contributed 3.2 percentage points, while import had negative impact of 6.4 percentage points. The increase in the trade deficit was the result of increased import of goods and services by 8.8 percent”, the report said. “Import of goods marked real growth of 10.4 percent, while import of services marked slow growth for 3.0 percent compared to 15.9 percent in 2024. On the other hand, increasing diaspora visits to Kosovo resulted in real export of services for 11.5 per cent. Meanwhile, export of goods marked a real 5.5 percent drop of”.

Less Economic Growth

For this year, the CEC has seen lower growth than in 2025.

For 2026, CEC projections suggest economic activity will mark growth of 3.5 percent. The increase is expected to be supported mainly by domestic demand, by consumption and exports respectively, while challenges in international trade and global uncertainty can have continued negative impact on the pace of economic growth. Factors expected to influence this growth are the revenues from the diaspora and the stabilisation of prices on international markets, which may influence increased confidence in consumers and investors. Internal demand is expected to contribute 3.0 percentage points to BPV growth. Private consumption is expected to contribute 3.3 percentage points, supported by increased remittances, compensation of workers and personal loans”, the report says. “Invesions are expected to contribute negatively by 1.0 percentage points. Exporting goods and services is expected to positively impact 2.9 percentage points, especially as a result of increased diaspora spending, while import of goods and services is expected to contribute negatively 1.5 percentage points, making net exports have a positive contribution of 1.4 percentage points to economic growth”.

The BEC report says the economic outlook remains exposed to risks and uncertainties that could negatively affect economic activity. It stresses that geopolitical tensions could affect energy prices and supply chains, with possible negative effects on trade and investment. Similarly, the potential slowdown of economic activity in the EU reportedly presents a factor of uncertainty about Kosovo's economic growth, taking into account close trade and financial ties.

The document also speaks of the region. In the Western Balkan countries, economic growth in 2025 is estimated to have averaged about 2.9 percent, marking slowdown compared to 3.7 percent in 2024, according to the IMF's assessment. However, developments within the region were not uniform.

In Kosovo, the slower growth of private consumption, as well as the deterioration of net exports, affected the pace of growth. In Albania, weakening external demand, largely as a result of the slower recovery in business partners, particularly in Italy, as well as the estimate of money that has increased production costs by reducing export competitiveness, along with the slowdown of household consumption, affected the slower pace of economic growth”, the document says.

Rising Prices

In addition to slowing economic growth, price increases are forecast.

The report acknowledges data that during 2025, Kosovo's price dynamic was marked by a return to inflationary pressures, following a relatively low inflation rate in 2024, when 1.6 percent.

Annual <x0) inflation followed a growth trajectory year-on-year, reaching 3.9 per cent on average, according to the ASS. The acceleration of inflation was driven mainly by rising food prices and nonalcohol beverages, which marked average growth of 7.6 percent (1.4 percent in 2024). Additional inflationary pressures were generated by increased electricity and services prices, as well as the slower decline in oil prices compared to the previous year. Meanwhile, prices of other goods remained relatively stable”, the report said. “Developments on the local food market reflected both fluctuations in international markets, especially on meat and coffee prices, as well as increasing domestic inflationary pressures. In all, the cost of agricultural inputs increased by 1.7 percent, while agricultural prices marked 5.3 percent growth in 2025, intensifying inflationary pressures in the food segment”, the report says.

The document says that rising electricity prices positively contributed 0.1 percentage points to inflation in 2025, compared to a negative contribution of -0.1 percentage point in the preceding year.

The report notes that the acceleration of overall inflation was not reflected in basic inflation, which slowed to 1.9 percent in 2025, versus 2.6 percent in 2024.

“This development reflects the structure of the price index, as overall inflation was dictated mainly by food and energy prices, while prices of other goods and services marked more limited growth, contributing to the slowdown of basic inflation”, the BQ report said. “The dependence on Kosovo's economy on imports of food and energy goods, as well as the high weight of these goods in the consumer basket, affect the inflation rate in Kosovo to be largely determined by imported goods prices. In 2025, about 3.0 B.C. Overall inflation was from import prices, while 0.9 p.p. was generated locally”.

The CEC has warned inflation deterioration.

“According to CEC projections, inflation during 2026 is expected to reach an annual average of about 6.7 percent before gradually slowing to 4.5 percent in 2017, as a result of easing external pressures. A partial mode of inflation could materialise in the second half of 2026, supported by slowing food inflation and the basic effects of electricity tariffs”, the report said. “However, the prospect remains associated with considerable uncertainty related to developments in global energy markets, geopolitical tensions and the possibility of spreading inflationary pressures on the prices of goods and other services”.

Market deficit deepening

The report also speaks of other sectors.

As far as the company's circulation, according to Tax Administration data (ATK), has seen 6.9 percent growth in 2025. Two sectors with the largest weight in the circulation of companies remain trade and processing industry, which represent 42.2 percent of the total circulation, respectively.

During 2025, circulation in these two sectors has marked growth. In the trade sector, average growth was 5.9 percent, while growth was 9.1 percent in the processing industry. As far as company registration was concerned, in 2025 more new companies were registered and less companies were closed compared to 2024, showing an improved business climate and private sector stability”, the report said. The number of new companies registered was 13,123 sosh, which represents an 8.9 percent increase compared to 2024, while 1,350 companies, or 17.5 percent less than in 2024”.

The trade sector continues to lead from the number of new companies, representing 23.8 percent of the total new registered companies, followed by the output sector by 11.0 percent, construction sector 10.7 percent, professional activities 10.4 percent, hotels 9.4 percent, etc. On the other hand, the only sector with the smallest number of companies registered compared to 2024 was the agriculture sector with 38 less companies.

And in its reference to the fiscal sector, the report says that during 2025, this sector was marked by significant growth in revenues and budget expenditures. Budget revenues reached 3.3 billion euros, marking annual growth of 7.6 percent.

This growth was supported by improving the collection process and strengthening the fight against tax evasion. As a result, the primary budget deficit reached 0.3 percent of BPV. Tax revenues marked increases in almost all components. The highest increase is marked at indirect tax revenues, which reached 2.5 billion euros, which amounted to 8.4 per cent increase compared to 2024. Direct tax revenues marked 8.1 per cent increase, reaching 559.3m euros. In the meantime, non-tatitive revenues marked slight growth of 0.5 percent, reaching 339.6m euros”, the report says. “Budget expenditures marked growth of 9.9 per cent, amounting to 3.4 billion euros. The current expenditures marked the highest growth of 9.5 percent, reaching 2.7 billion euros. Within this category, wage expenses marked increases of 7.9 percent, reaching the value of 910.6m euros, while spending on goods and services (including municipal ones) marked increases of 8.8 percent, reaching the value of 502.4m euros”.

The report also speaks of the outside sector. It stresses that in 2025, the balance of payments was characterised by deepening the deficit in the current account, while the financial account continued to reflect net capital inflows, enabling external deficit financing.

“Capital dialogue remained positive and marked slight growth compared to the previous year. The current account deficit reached 908.4m euros, marking annual growth of 4.1 percent. The deficit's expansion was largely determined by deepening the trade balance deficit of goods and in part by the decline of the positive balance of primary income”, the report said. “at the same time, improving the balance of services, as well as the balance of secondary incomes, contributed to the partial smoothing of this deepening”.

The document acknowledges evidence that the trade deficit of goods has seen 12.5 percent increase, reaching the value of 6.1 billion euros. Exporting goods has reached 942.1m euros, marking a slight drop of 0.2 per cent against the previous year.

“Renya was influenced mainly by basic metals, which marked a 7.9 percent drop and contributed by -1.8 percentage points in total export as a result of external demand weakening and production challenges. Other products produced also scored 6.1 percent, with a negative contribution of -0.7 percentage points. On the other hand, food items, machinery (including electrical equipment) and plant products contributed positively, partially reducing the overall loss of exports”, the report says. “From a geographical standpoint, the Western Balkans remain the main destination of exports (with 45.8 percent), where Albania and Northern Macedonia represent the main markets. EU countries make up 33.6 per cent of the total export, with Germany as top trading partner”.

Meanwhile, import of goods has reached 7.0 billion euros, marking annual growth of 10.6 percent. According to the report, growth was supported by domestic demand, reflected in the increase in the quantity and weight of imported goods, which marked growth of 13.1 percent, respectively.

“Import framework remained largely unchanged, dominated by mineral products, transport tools, machinery and food items. Intermediate goods accounted for 43.8 percent of total imports, consumer goods 34.6 percent, and capital goods 11.2 percent, although the latter marked annual growth of 9.7 percent. As for the geographical structure, 43.1 percent of imports were made by EU countries, 13.7 per cent from countries in the region, 13.3 per cent from Turkey and 13.1 per cent from China”, says the report.

On the other hand, the balance of services has reached 2.4 billion euros, marking annual growth of 32.2 percent.

The report points out that the export of services marked a 27.9 per cent increase, reaching 4.3 billion euros, with the main contribution from travel services reached 3.2 billion euros (a 32.9 per cent increase), reflecting diaspora spending and increasing the number of travelers and flights compared to the previous year. Also, computer, information, and telecommunications services marked growth of 14.3 percent, worth 398.2m euros. The BEC report provided that import of services marked an increase of 22.9 per cent, with the main contribution from travel and transport services.