Strong economic rebound in 2021
The economy of Kosovo was hit hard by COVID-19 in 2020. In particular tourism receipts, which accounted for 18% of GDP in 2019, dropped by more than half in 2020 on the back of travel restrictions. A strong fiscal response and higher remittances were able to reduce the effect of the shock. Nevertheless, GDP declined by 5.3% in 2020. For 2021, a strong rebound is expected with GDP growing by over 6%. The recovery is broadly based, but a very strong summer season for tourism was a decisive factor.
Inflation remains low, as the use of the Euro as legal tender supports price stability in Kosovo. Trade in goods was practically not affected by COVID-19, with exports of goods increasing by 24% in 2020. However, trade in services, where Kosovo traditionally features a strong surplus, was strongly hit due to travel restrictions affecting tourist receipts.
The fiscal response was strong, but led to a budget deficit of 7.7% of GDP in 2020. While the deficit will only slightly decrease in 2021, fiscal consolidation should take place in 2022, in order to limit the increase in government debt. Thus, the short-term outlook for Kosovo is positive. But medium-term growth requests structural reforms, which need to be tackled in the very short term.