North Macedonia Outlook | Growth should accelerate over the medium term
CEE Macro Outlook , 20. Nov.
According to available data, recovery in 2024 remains constrained. Underperformance stems from delays in highway construction and slow recovery of key external markets, notably Germany. Growth is projected to accelerate over the forecasted period, but risks are largely to the downside.
While headline inflation has come a long way since it peaked in late, easing to 3.5% y/y in October, core inflation remains a source of concern as it landed at 5.9% y/y in the same month. Acceleration of core inflation stems from high wage gains as well a surge in service prices.
After recording a C/A surplus of 0.4% of GDP in 2023, worsening trade balance pushed the C/A into the red, amounting -1.4% of the GDP at 1H24 (on a 4QMA). Given expected widening of the trade gap due to highway related imports and still muted export performance, we expect a deterioration in the mid-term.
Monetary policy remained on the cautious side longer than elsewhere in the region, with the CB bill interest rate at 6.3% until September. Since then we saw two consecutive 25bps cuts. We expect the central bank to remain cautious.
Fiscal consolidation is once again postponed due to pre-election spending related to the former administration but also post-election decision of the new administration to increase pensions and part of public sector wages. Due to subdued growth and high projected budget gaps, public debt to GDP ratio will continue to rise.
Following their triumphant victory in June elections, right-wing VMRO DPMNE soon formed a coalition government with ethnic Albanian parties. The coalition appears stable and should maintain a pro-EU policy approach albeit, according to early statements, not at all costs.
While headline inflation has come a long way since it peaked in late, easing to 3.5% y/y in October, core inflation remains a source of concern as it landed at 5.9% y/y in the same month. Acceleration of core inflation stems from high wage gains as well a surge in service prices.
After recording a C/A surplus of 0.4% of GDP in 2023, worsening trade balance pushed the C/A into the red, amounting -1.4% of the GDP at 1H24 (on a 4QMA). Given expected widening of the trade gap due to highway related imports and still muted export performance, we expect a deterioration in the mid-term.
Monetary policy remained on the cautious side longer than elsewhere in the region, with the CB bill interest rate at 6.3% until September. Since then we saw two consecutive 25bps cuts. We expect the central bank to remain cautious.
Fiscal consolidation is once again postponed due to pre-election spending related to the former administration but also post-election decision of the new administration to increase pensions and part of public sector wages. Due to subdued growth and high projected budget gaps, public debt to GDP ratio will continue to rise.
Following their triumphant victory in June elections, right-wing VMRO DPMNE soon formed a coalition government with ethnic Albanian parties. The coalition appears stable and should maintain a pro-EU policy approach albeit, according to early statements, not at all costs.