The year 2025 for Bosnia and Herzegovina was a year of challenges, but also of important developments 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. Thus, real GDP growth in the first half of the year amounted to 1.8% on an annual basis, as a reflection of the slowdown in domestic consumption and investments and the negative contribution of net exports to overall growth. A combination of factors, including political instability and uncertainty, weakened domestic consumption, primarily contributed to the slowdown in growth. The sharp slowdown in retail sales and investment activities signaled the restraint of consumers and investors, while growing inflation and the growth of the trade deficit further clouded the economic outlook in the first part of the year.
“However, high-frequency indicators indicated 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 strengthened the trend. The aforementioned dynamics are expected to result in faster GDP growth in the third quarter of 2025, estimated at 2.2% on an annual basis. Retail sales turnover, one of the key indicators of private consumption, exits the negative trend already in May. However, more stable signs of recovery become visible only during the third quarter, with an average annual growth of 2.4%. Although this growth is in line with expectations for the current year, with the assumption of further strengthening in the fourth quarter, the dynamics of the export of goods during most of the year is a positive signal in the context of global disturbances and a slight recovery of demand from the EU. Nevertheless, the continuous growth of foreign trade deficit of around 3% on an annual basis indicates that more structural changes are needed for a stronger impulse of recovery and sustainable GDP growth, especially when it comes to industrial production. It is positive that the manufacturing industry and wholesale and retail sectors have re-entered a slightly positive zone after the contraction at the beginning 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. Together, these sectors underline the shift towards a service- and knowledge-based economy, helping to mitigate the slower performance of traditional industries that continue to characterize the economy of BiH,” highlighted Raiffeisen Bank’s Research, Strategy and ESG Management sector analysts.
The labor market during 2025 shows relative stability despite the shocks at the beginning of the year. The official unemployment rate in October was 26.9%, which is below the level recorded at the end of 2024. However, structural indicators point to challenges: employment has decreased by 2.8 thousand compared to the end of 2024, while the number of unemployed persons on records is lower by over 5 thousand. At the same time, the total labor force recorded a drop of 8 thousand, which suggests an unenviable trend of exiting the labor market, migration towards the EU and accelerated retirement that exceeds the employment of young people. A positive element remains the strong growth of average wages, driven by the increase in the minimum wage and wage adjustments within different sectors. Average growth exceeds 13%, making 2025 the fourth consecutive year of double-digit wage growth in Bosnia and Herzegovina.
Inflationary pressures reappeared in 2025, driven primarily by price growth in the food and services segment, and subsequently by growth in electricity prices and housing costs. Consequently, inflation exceeded 4% in the second part of the year, while the average annual rate in 2025 is estimated at around 3.9%. In the coming period, it is expected to stabilize at a lower level (2.3% in the medium term), but still above the pre-pandemic level, due to more intensive private consumption driven by the growth of wages and remittances, and due to significant dependence on industrial and food imports. Global energy and agri-food price shocks remain a key risk to long-term price stability.
As a consequence of the aforementioned trends, the economic growth forecast for 2025 is at the level of 2.0% per year, with an expected gradual acceleration to average growth rates during 2026 and 2027 of 3%. Bosnia and Herzegovina enters the next period with cautious but positive expectations. The key prerequisite for the realization of this scenario is the consistent implementation of the Reform Agenda, adopted at the end of this year, which includes the modernization of management, strengthening of institutional capacities, encouraging the competitiveness of the private sector and the transformation of business towards sustainable sources. These reforms are essential for eliminating structural weaknesses, increasing investments and creating a more favorable business environment.
“Successful implementation of reforms opens up space for stronger integration of Bosnia and Herzegovina through the Growth Plan for the Western Balkans, a regional initiative that aims to accelerate economic convergence and strengthen connections with the EU. This would enable not only faster growth, which could exceed 4% per year, but also long-term stability and resistance of the economy to external shocks.
However, risks remain through the global volatility of energy and food prices, moderate growth of the European economy, and limited external demand and internal weaknesses that may slow down the dynamics of recovery. On the other hand, the positive impulse that can strengthen the timely implementation of the necessary reforms and the strengthening of the investment environment represent a key opportunity for attracting capital and increasing productivity, which opens up space for additional growth in Bosnia and Herzegovina. economy in the medium term”, according to the analysts of Raiffeisen Bank in Bosnia and Herzegovina.
