Kosovo's economic growth is expected to slow this year, while inflation is expected to increase significantly. The Central Bank, in its annual report, forecasts economic growth of 3.5 percent and average inflation of 6.7 percent. According to the report, the economy will continue to be supported mainly by consumption and exports. And, geopolitical tensions and uncertainties in the global economy, according to the CBK, remain the main risks to the economy
The Central Bank of Kosovo (CBK) has warned of a slowdown in Kosovo's economic growth this year, and an increase in inflation. This was highlighted in the report for 2025, which was approved by the CBK Board on Monday, and later submitted to the Parliament.
According to the document, Kosovo's economy continued to grow during 2025, but at a slower pace compared to the previous period.
"According to quarterly estimates by the Kosovo Agency of Statistics (KAS), real GDP (Gross Domestic Product) increased by 3.6 percent during 2025. Although the growth was positive, it reflects a moderation in economic activity, influenced by developments in the external sector, namely by the negative contribution of imports of goods and services. On the other hand, consumption, investments and exports of services continued to support economic growth," the report states, which Governor Ahmet Ismaili submitted to the Speaker of Parliament Albulena Haxhiu, who is also the acting president.
It notes that consumption, as the main component of domestic demand, contributed 3.9 percentage points to real GDP growth, compared to 4.8 percentage points in 2024. Based on the report, consumption growth is found to have been supported by the increase in the main sources of financing as well as the slowdown in price growth.
"Investments contributed 2.9 percentage points to real GDP growth, compared to 2.1 percentage points in 2024, mainly as a result of increased public investment," the report said.
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Regarding the external sector, the CBK has emphasized that net exports negatively impacted economic growth by -3.1 percentage points.
“Exports of goods and services contributed positively by 3.2 percentage points, while imports had a negative impact of 6.4 percentage points. The increase in the trade deficit was the result of an increase in imports of goods and services by 8.8 percent,” the report says. “Imports of goods marked a real increase of 10.4 percent, while imports of services marked a slower increase of 3.0 percent, compared to 15.9 percent in 2024. On the other hand, the increase in diaspora visits to Kosovo resulted in a real increase in exports of services by 11.5 percent. Meanwhile, exports of goods marked a real decrease of 5.5 percent.”
Less economic growth
For this year, the CBK has predicted lower growth than in 2025.
"For 2026, CBK projections suggest that economic activity will grow by 3.5 percent. Growth is expected to be supported mainly by domestic demand, namely consumption and exports, while challenges in international trade and global uncertainties may have a continued negative impact on the pace of economic growth. Factors expected to influence this growth are income from the diaspora and price stabilization in international markets, which may affect the increase in consumer and investor confidence. Domestic demand is expected to contribute 3.0 percentage points to GDP growth. Private consumption is expected to contribute 3.3 percentage points, supported by the increase in remittances, employee compensation and personal loans," the report states. "Investments are expected to contribute negatively by 1.0 percentage points. Exports of goods and services are expected to contribute positively by 2.9 percentage points, particularly as a result of increased diaspora spending, while imports of goods and services are expected to contribute negatively by 1.5 percentage points, leading to net exports having a positive contribution of 1.4 percentage points to economic growth."
The CBK report states that the economic outlook remains exposed to risks and uncertainties that could negatively affect economic activity. It emphasizes that geopolitical tensions could affect energy prices and supply chains, with potential negative effects on trade and investment. It also states that the potential slowdown in economic activity in the EU represents a factor of uncertainty for Kosovo's economic growth, considering the close trade and financial ties.
The document also speaks about the region. In the Western Balkan countries, economic growth in 2025 is estimated to have averaged around 2.9 percent, marking a slowdown compared to 3.7 percent in 2024, according to the IMF's assessment. However, developments within the region were not uniform.
"In Kosovo, slower growth in private consumption and the deterioration of net exports affected the growth rate. In Albania, weakening external demand, mainly as a result of the slower recovery in trading partner countries, especially in Italy, as well as the appreciation of the lek that has increased production costs by reducing the competitiveness of exports, together with the slowdown in household consumption, affected the slower pace of economic growth," the document states.
Increase in prices
In addition to slowing economic growth, price increases are also expected.
The report highlights the data that during 2025, price dynamics in Kosovo were characterized by a return of inflationary pressures, after the relatively low inflation rate in 2024, when it was 1.6 percent.
"Annual inflation followed an upward trajectory throughout the year, reaching 3.9 percent on average, according to ASK. The acceleration in inflation was driven mainly by the increase in food and non-alcoholic beverage prices, which marked an average increase of 7.6 percent (1.4 percent in 2024). Additional inflationary pressures were generated by the increase in electricity and utility 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 states. "Developments in the domestic food market reflected both fluctuations in international markets, particularly for meat and coffee prices, and rising domestic inflationary pressures. Specifically, the cost of agricultural inputs increased by 1.7 percent, while agricultural product prices increased by 5.3 percent in 2025, intensifying inflationary pressures in the food segment," the report states.
The document states that the increase in electricity prices contributed positively by 0.1 percentage points to inflation in 2025, compared to a negative contribution of -0.1 percentage points in the previous year.
The report notes that the acceleration in headline inflation was not reflected in core inflation, which slowed to 1.9 percent in 2025, compared to 2.6 percent in 2024.
“This development reflects the structure of the price index, as overall inflation was mainly dictated by food and energy prices, while prices of other goods and services recorded a more limited increase, contributing to the slowdown in core inflation,” the CBK report states. “The dependence of the Kosovo economy on the import 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 determined to a large extent by the prices of imported goods. In 2025, about 3.0 pp of overall inflation was from import prices, while 0.9 pp was generated domestically.”
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The CBK has warned of worsening inflation.
“According to CBK projections, inflation during 2026 is expected to reach an annual average of about 6.7 percent, before gradually slowing to 4.5 percent in 2027, as a result of the easing of external pressures. A partial moderation in inflation could materialize in the second half of 2026, supported by the slowdown in food inflation and favorable base effects from electricity tariffs,” the report says. “However, the outlook remains accompanied by considerable uncertainty, related to developments in global energy markets, geopolitical tensions and the possibility of inflationary pressures spilling over to other goods and services prices.”
Trade deficit deepens
The report also talks about other sectors.
Regarding the turnover of enterprises, according to data from the Tax Administration (ATK), it has increased by 6.9 percent in 2025. The two sectors with the largest share in the turnover of enterprises remain trade and processing industry, which represent 42.2 and 10.5 percent of the total turnover, respectively.
“During 2025, turnover in these two sectors increased. In the trade sector, the average growth was 5.9 percent, while in the processing industry sector the growth was 9.1 percent. Regarding the registration of enterprises, in 2025 more new enterprises were registered and fewer enterprises were closed compared to 2024, indicating an improvement in the business climate and stability of the private sector,” the report says. “The number of new enterprises registered was 13,123, which represents an increase of 8.9 percent compared to 2024, while 1,350 enterprises were closed, or 17.5 percent less than in 2024.”
The trade sector continues to lead in terms of the number of new enterprises, representing 23.8 percent of total new registered enterprises, followed by the manufacturing sector with 11.0 percent, the construction sector with 10.7 percent, professional activities with 10.4 percent, hospitality with 9.4 percent, etc. On the other hand, the only sector with the lowest number of registered enterprises compared to 2024 was the agriculture sector with 38 fewer enterprises.
And, in the part referring to the fiscal sector, the report states that during 2025, this sector was characterized by a significant increase in budget revenues and expenditures. Budget revenues reached 3.3 billion euros, marking an annual increase of 7.6 percent.
“This growth was supported by the improvement of the revenue collection process and the strengthening of the fight against tax evasion. As a result, the primary budget deficit reached 0.3 percent of GDP. Tax revenues recorded an increase in almost all components. The highest increase was recorded in indirect tax revenues, which reached 2.5 billion euros, which constitutes an increase of 8.4 percent compared to 2024. Direct tax revenues recorded an increase of 8.1 percent, reaching 559.3 million euros. Meanwhile, non-tax revenues recorded a slight increase of 0.5 percent, reaching 339.6 million euros,” the report states. "Budgetary expenditures increased by 9.9 percent, reaching a value of 3.4 billion euros. Current expenditures recorded the highest increase, by 9.5 percent, reaching a value of 2.7 billion euros. Within this category, expenditures for salaries increased by 7.9 percent, reaching a value of 910.6 million euros, while expenditures for goods and services (including municipal ones) increased by 8.8 percent, reaching a value of 502.4 million euros."
The report also discusses the external sector. It notes that in 2025, the balance of payments was characterized by a widening current account deficit, while the financial account continued to reflect net capital inflows, enabling the financing of the external deficit.
“The capital account remained positive and marked a slight increase compared to the previous year. The current account deficit reached 908.4 million euros, marking an annual increase of 4.1 percent. The expansion of the deficit was determined mainly by the deepening of the trade deficit in goods and partly by the decline in the positive balance of primary incomes,” the report says. “At the same time, the improvement of the balance of services, as well as the balance of secondary incomes, contributed to the partial mitigation of this deepening.”
The document shows that the trade deficit in goods has increased by 12.5 percent, reaching a value of 6.1 billion euros. Exports of goods have reached 942.1 million euros, marking a slight decrease of 0.2 percent compared to the previous year.
“The decline was mainly driven by base metals, which fell by 7.9 percent and contributed -1.8 percentage points to total exports, as a result of weaker external demand and production challenges. Other manufactured goods also fell by 6.1 percent, with a negative contribution of -0.7 percentage points. On the other hand, food products, machinery (including electrical equipment) and plant products contributed positively, partially mitigating the overall export decline,” the report said. “From a geographical perspective, the Western Balkans remains the main export destination (with 45.8 percent), with Albania and North Macedonia representing the main markets. EU countries account for 33.6 percent of total exports, with Germany as the main trading partner.”
Meanwhile, imports of goods reached 7.0 billion euros, marking an annual increase of 10.6 percent. According to the report, the growth was supported by domestic demand, reflected in the increase in the quantity and weight of imported goods, which marked an increase of 13.1 and 8.2 percent, respectively.
"The structure of imports remained largely unchanged, dominated by mineral products, means of transport, machinery and foodstuffs. Intermediate goods accounted for 43.8 percent of total imports, consumer goods 34.6 percent, while capital goods 11.2 percent, although the latter recorded an annual growth of 9.7 percent. Regarding the geographical structure, 43.1 percent of imports were made from EU countries, 13.7 percent from countries in the region, 13.3 percent from Turkey and 13.1 percent from China," the report states.
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On the other hand, the services balance reached 2.4 billion euros, marking an annual increase of 32.2 percent.
The report highlights that the export of services increased by 27.9 percent, reaching a value of 4.3 billion euros, with the main contribution from travel services, which reached 3.2 billion euros (an increase of 32.9 percent), reflecting diaspora spending and the increase in the number of passengers and flights compared to the previous year. Similarly, computer, information and telecommunications services increased by 14.3 percent, reaching a value of 398.2 million euros. The CBK report highlights the data that the import of services increased by 22.9 percent, with the main contribution from travel and transport services.
