Kosovo’s economy experienced strong growth over the past decade driven by domestic demand largely
financed by remittances and aid. GDP growth averaged 3.4 percent during 2008–15. Domestic savings have
been negative; consumption and investments were the key contributors to economic growth. Private consumption
was fueled by both remittances and large increases in public sector wages and transfers (especially pensions).
Kosovo’s production capacity is growing but it is narrow, undiversified and uncompetitive. The non-tradable sectors
dominate output and employment. Services is the largest sector with value added at over half of GDP, and it
contributed heavily to growth over the past decade. Tradables sectors, including agriculture (12 percent) and
manufacturing (11.2 percent), are small.
Kosovo is one of the youngest countries in Europe, with an increasing share of working age
population – a transitory demographic bonus that offers opportunities. Youth (under 15) are 25.7 percent
of the population, while working age (15–64) account for 67.6 percent. Kosovo’s ratio of working age
population to dependents is projected to increase from 1.88 in 2011 to 2.24 in 2021, and will not dip below the
2011 level before 2046. Only eight percent of Kosovo’s population today are elderly, compared to 19 percent
in the EU-28, and 22 percent in Italy.
Against this background, it is problematic that economic growth over the past decade has not been
associated with robust job creation. Data from the registry of formal sector firms over 2005–2014 reveal
that the rate of net job creation by formal firms has declined from over 7,000 net new jobs at the beginning of
this period, to just over 1,600 in 2014. Commerce and services sectors are the only sectors to have performed
consistently well in terms of net job creation over the past decade; the contribution of the manufacturing sector
has been negative since 2012, the capacity of the construction sector to add new jobs has also been in decline.