Moderate growth in 2025 and higher risks for 2026: Consumption and investment sustain the BiH economy, inflationary pressure present again
- BiH's moderate growth relies on local consumption, while external shocks increase inflationary risks and worsen the outlook for 2026
(Sarajevo, 08.05.2026) – The economy of Bosnia and Herzegovina in 2025 recorded moderate but uneven growth, primarily driven by household consumption, while negative net exports were a key factor slowing economic growth. The year ended with a growth rate of 2.1% year-on-year, indicating a resilient but limited economic recovery.
The beginning of the year was marked by a clear slowdown, visible primarily through weaker dynamics of private consumption and investment activities, while, in parallel with the gradual easing of uncertainty and improvement in economic sentiment, the second half of the year saw a gradual recovery and consolidation of overall economic activity. Household consumption and government consumption, with growth of 2.3% and 2.8% respectively, played a key role in maintaining economic activity, while investment activity, after a slower start, accelerated and achieved annual growth of 6.7%. In contrast, developments in foreign trade have further emphasised the existing structural imbalances and dependence on imports. Although exports of goods and services recorded a moderate recovery of 2.6% in 2025, after two years of negative trends, such growth was not sufficient to compensate for the faster expansion of imports (5.2%), which resulted in a further reduction of net exports in the GDP structure. Inflation was above the target level throughout the year, with an acceleration in the second half of the year driven primarily by price increases in the food, services and energy segments, which contributed to an average price growth rate of 4%.
"Overall, 2025 was marked by moderate resilience of the local economy, with local demand providing short-term stability, but at the same time, there remains a clear need for deeper structural reforms to strengthen production capacities, improve external competitiveness and ensure more balanced and sustainable long-term growth in Bosnia and Herzegovina," noted analysts from the Research, ESG and Structured Finance sector at Raiffeisen Bank in Bosnia and Herzegovina.
The beginning of 2026 was marked by the easing of price pressures, with a gradual slowdown in the growth of prices for food and imported products, which is partly the result of the stabilisation of global commodity markets. However, inflationary pressures persisted through local factors, primarily the growth in housing costs, energy, utilities and service prices. Additional pressures came from rising labour and business costs, which quickly spilled over into final consumer prices.
However, the escalation of the conflict in the Middle East also resulted in the closure of the Strait of Hormuz, which caused significant disruptions in the global energy market and a sharp increase in oil prices. Although the conflict has no direct implications for BiH in terms of security, high dependence on oil imports has led to a sharp increase in energy prices and additional inflationary pressures. This was reflected in the acceleration of inflation in March to 5.1% annually, with the transportation category recording the strongest price increase of 11.1%. With expectations that price pressures will continue and that the strong growth in fuel prices will spill over to other components of the consumer price index, primarily food and services, it is realistic to expect that average inflation in 2026 will reach a level of around 4.5%.
Looking at economic developments in the first quarter of 2026, retail sales are once again recording double-digit growth rates, reaching a level of almost 12% in February. Such dynamics represent one of the key factors in the context of local consumption and its contribution to GDP trends in 2026. Although inflation and global turmoil will affect consumer behaviour, local consumption is expected to remain relatively resilient this year. On the other hand, developments in Bosnia and Herzegovina's foreign trade and industry have further emphasised the structural asymmetry between local demand and the production sector. Although exports recorded growth of around 6% in February, cumulatively they are still in the negative zone, while the reduction in the trade deficit of 3.4% on an annual basis is more a result of weaker import dynamics than of a real strengthening of export competitiveness. In parallel, industrial production continued to record a very negative trend, with a decline of around 6% year-on-year in the first quarter. A particularly strong contraction was recorded in mining (-20%), while the manufacturing industry remained in the negative growth zone (-3.5%). These developments confirm that the lack of industrial recovery and limited export momentum remain key constraints to growth, and that economic activity in early 2026 continues to rely primarily on local consumption.
"The escalation of the conflict in the Middle East, coupled with the pronounced sensitivity of the Bosnia and Herzegovina economy to external shocks, was the key reason for the revision of the most important macroeconomic projections. In addition to increased inflationary pressures, which will keep inflation above the healthy level of 2% this year, the deterioration of the external environment, with weak economic growth of only 0.5% in the Eurozone, BiH's main trading partner, has direct implications for export demand. Weaker economic activity in the eurozone is further limiting BiH's export trends, which, combined with existing internal weaknesses in industrial production, contributes to a slowdown in overall domestic economic activity and a deterioration in the outlook for economic growth. In this context, economic growth expectations for 2026 have been revised downwards, to 1.7%. Risks to macroeconomic stability in the mid-term are still present, primarily through inflationary pressures and weaker growth dynamics," concluded analysts at Raiffeisen Bank in Bosnia and Herzegovina.