The beginning of 2025 brought a slowdown in economic activity; visible signs of recovery are strengthening the outlook for the second half of the year; inflation is re-emerging as a key challenge; positive effects of the timely and consistent implementation of the Reform Agenda.
The year 2025 for Bosnia and Herzegovina (BiH) was a year of challenges, but also of important shifts that shaped the country’s economic and political environment. After solid results in 2024, with GDP growth of 3%, above the five-year average, the beginning of 2025 brought a slowdown in economic activity.
Real GDP growth
Thus, real GDP growth in the first half of the year amounted to 1.8% year-on-year, reflecting subdued domestic consumption and investment, as well as a negative contribution of net exports to overall growth. A combination of factors, including political instability and uncertainty, and weakened domestic consumption, primarily contributed to the slowdown in growth.
A sharp deceleration in retail trade turnover and investment activity signalled restraint among consumers and investors, while rising inflation and a growing trade deficit further clouded the economic outlook in the first part of the year.
However, high-frequency indicators pointed to the first signs of recovery already in the second quarter, while the strengthening of positive developments in certain segments of the economy during the summer months further reinforced the trend. It is expected that this dynamic will result in faster GDP growth in the third quarter of 2025, estimated at 2.2% year-on-year, analysts from the Research, Strategy and ESG Management sector of Raiffeisen Bank in BiH pointed out.
Retail trade turnover, one of the key indicators of private consumption, emerged from a negative trend as early as May. Nevertheless, more stable signs of recovery became visible only during the third quarter, with an average annual growth of 2.4%. Although this growth is significantly below the average of previous years, it is in line with expectations for the current year, assuming further strengthening in the fourth quarter.
Stronger export growth
The dynamics of foreign trade show stronger growth in goods exports compared to imports during most of the year, following two years of pronounced negative trends, which represents a positive signal in the context of global disruptions and a mild recovery in demand from the European Union (EU) – the market that predominantly shapes this segment of the economy. However, the continued growth of the foreign trade deficit of around 3% on an annual basis indicates that stronger structural shifts are needed for a more robust recovery impulse and sustainable GDP growth, particularly in industrial production.
It is encouraging that the GDP report for the second quarter showed that the manufacturing sector, as well as wholesale and retail trade, re-entered a mildly positive zone after contraction at the beginning of the year, and this trend is expected to continue for the remainder of the year. The service sector remained resilient, with accommodation, IT services, and transport recording the most dynamic growth rates, mitigating structural weaknesses and supporting overall economic stability.
Labour market stable
Together, these sectors highlight a shift towards a service- and knowledge-based economy, helping to offset the weaker performance of traditional industries that still characterise the economy of BiH, analysts from the Research, Strategy and ESG Management sector of Raiffeisen Bank in BiH emphasize.
The labour market in 2025 shows relative stability despite shocks at the beginning of the year. The official unemployment rate in October stood at 26.9%, which is below the level recorded at the end of 2024. However, structural indicators point to challenges: employment decreased by 2.8 thousand compared to the end of 2024, while the number of registered unemployed persons fell by more than 5 thousand. At the same time, the total labour force declined by 8 thousand, suggesting an unfavourable trend of exits from the labour market, migration towards the EU, and accelerated retirement that exceeds the employment of young people.
A positive element remains the strong growth in average wages, driven by the increase in the minimum wage and wage adjustments across various sectors. Average growth exceeds 13%, making 2025 the fourth consecutive year of double-digit wage growth in BiH.
Inflationary pressures
Inflationary pressures re-emerged in 2025, primarily driven by rising prices in the food and services segments, followed subsequently by increases in electricity prices and housing costs. As a result, inflation exceeded 4% in the second half of the year, while the average annual rate in 2025 is estimated at around 3.9%. In the period ahead, stabilization at a lower level is expected (2.3% in the medium term), but still above the pre-pandemic level, due to more intense private consumption driven by wage growth and remittances, as well as significant dependence on industrial and food imports. Global shocks to energy and agri-food prices remain a key risk to long-term price stability.
As a consequence of the aforementioned trends, the economic growth forecast for 2025 stands at 2.0% annually, with expected gradual acceleration to average growth rates of 3% during 2026 and 2027. BiH enters the next period with cautious but positive expectations. The key prerequisite for achieving this scenario is the consistent implementation of the Reform Agenda, adopted at the end of this year, which includes modernization of governance, strengthening of institutional capacities, boosting private sector competitiveness, and transforming operations towards sustainable sources. These reforms are essential for eliminating structural weaknesses, increasing investment, and creating a more favourable business environment.
Growth Plan
“Successful implementation of reforms opens space for stronger integration of BiH through the Growth Plan for the Western Balkans, a regional initiative aimed at accelerating economic convergence and strengthening connectivity with the EU. This would enable not only faster growth, which could exceed 4% annually, but also long-term stability and resilience of the economy to external shocks.
However, risks remain present through global volatility in energy and food prices, moderate growth of the European economy, as well as limited external demand and internal weaknesses that may slow the pace of recovery. On the other hand, the positive impulse that can strengthen the timely implementation of necessary reforms and the improvement of the investment environment represents a key opportunity for attracting capital and increasing productivity, opening space for additional growth of the economy of BiH in the medium term,” analysts from Raiffeisen Bank in BiH state.
