Macro: COVID-19 Update Bosnia and H.: Severe economic storm ahead

As containment measures in Europe and B&H lasted longer than expected, the lockdown effect on the economy is expected to be stronger than previously expected in March. The new baseline economic outlook is developed under the assumption that the first hit of pandemic and required containment measures should peak in Q2 while a gradual resumption of economic activity is expected in H2. The decline of GDP is mainly due to a slump in private consumption. We expect a decrease in wages and an increase in unemployment. Exports of goods and services are expected to decline, from an already low level.
The most affected production sectors in B&H, with expected double-digit decline of GVA, are tourism, transport and wholesale trade still have a moderate share in the GDP of B&H. Thus, B&H economy is more resilient to the severe fallout, compared to some regional peers, since retail trade and manufacturing industry, the major drivers of GDP, are expected to decline in the range of 4-6% yoy. Only agriculture, public sector and financial services are expected to remain in the low growth area in 2020.
Two political entities have established fiscal measures programmes, combining to a total of EUR 1.25 bn (7.1% of GDP), which will largely be financed through an increase of external debt. External support has been pledged by multiple organisations such as the EU, World Bank and the IMF. Still, the fiscal countermeasures and support packages will lead to worsening fiscal metrics, however, the fiscal metrics were sound in comparison to the regional peers.

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.