COVID-19 Update Bosnia and H.: Can we dare to say that the worst is behind us?

COVID-19 development: The easing of lockdown restrictions in B&H at the end of May-20 lead to the expected surge in average number of COVID-19 infections in the period June-August 2020. Precisely, the average number of people tested positive went from 62 in June up to 229 in July and peaked at 269 in August. However the 10-day average in Sep-20 stands around 245 and this could be an indication that the peak is behind us for the time being.
Economic development: The collapse of the private spending by -6.8% yoy in 2020 is at the center of our baseline scenario. However, the first estimate of Q2 GDP and its components have yet to be released, while our projection of a colossal decline in the range of -13% to -16% yoy for Q2 remains in place. The heavyweight indicators such as retail trade, industry, trade balance, tourism which strongly correlate with GDP, envisage such outcome. Although expected, the opening month of Q3 did not bring much relief, as industrial recovery and retail sales did not recover.
Fiscal policy implications: In the meantime, the country's public debt has reached an all-time high of BAM 12.7 bn (36.8% of expected GDP) in 2020. The IMF's RFI loan was the main driver of the public debt increase while B&H political authorities agreed in the meantime to open the process of negotiations with the IMF on a new agreement.
Inflation: In the first seven months of the year, the inflation averaged -0.7% yoy which is in line with our expectations of FY deflation at -0.3% yoy as the first deflation rate for in the past four years

This Research was produced and first published by Raiffeisen Bank International AG which is supervised by the Austrian Financial Market Authority and the National Bank of Austria.