In focus:

• Real economy: The economy of B&H grew at a sound rate of 3.4% yoy in Q2 2018, its best pace since the opening quarter of 2017, thus boosting hopes that the economy will reach a growth rate of 3.0% yoy this year after a weak beginning (2.0% yoy in Q1). As for 2019, we expect an economic pattern similar to 2018, while a gradual slowdown in global economic activity in the 2020/2021 period will also dampen economic growth in B&H, subsequently resulting in a deterioration of the overall average real GDP growth for the period to 2.2% yoy.

• Inflation: Over eight months of 2018, the average inflation rate was 1.3% yoy – boosted largely by transport prices (7.5% yoy) and heading towards our FY target rate of 1.5% yoy. The inflation should remain at a moderate level of 2.0% yoy in the 2019/2020 period, followed by a deceleration in 2021.

• Fiscal policy: We expect that the new governments will reopen negotiations with the IMF shortly after they are formed in 2019 and that B&H will enter into a new IMF programme – these programmes being among the key drivers of reform processes and economic stability in the country, after all. We therefore expect that the general budget balance will remain in positive territory at around 1% of the GDP in the medium-term period of 2019/2020.

• Banking sector: First indicators for Q3 2018 confirmed that a steady growth of loans and deposits has continued with a 6.8% yoy increase of loans and a 11.8% yoy plus for deposits in August 2018.  An economy driven by the traditionally strong exports, resilient private consumption and gross investments should result in slightly higher growth rates for loans and assets in 2019 but these are expected to be in a single-digit range (between 7% and 8% yoy).

Please find linked the analysis Bosnia a. H. Economic Update CEE 19_10_2018