Economic Outlook for the Former Yugoslav Republic of Macedonia
A Recovery in Real GDP Growth Expected
The Former Yugoslav Republic of Macedonia is projected to experience a significant improvement in its real Gross Domestic Product (GDP) growth over the medium term. This recovery is driven by several key factors, including:
- Resumption of Infrastructure Investment: Following a period of stagnation, infrastructure investment is expected to resume, leading to increased economic activity.
- Lifting of Moratoriums on Permit Issuance: The removal of restrictions on permit issuance will facilitate the implementation of projects and stimulate growth.
- Signs of Bottoming Out in Construction: Indicators suggest that the construction sector, which has been experiencing a downturn, is beginning to show signs of recovery.
Medium-Term Outlook
The medium-term outlook for the economy is positive, with real GDP growth expected to increase to 3.5 percent. This growth will be driven by:
- Higher Exports: Increased exports are expected to contribute to the growth in real GDP.
- Planned Infrastructure Investment: The resumption of infrastructure investment will also support economic expansion.
Inflation and Current Account Deficit
Headline inflation is projected to increase towards 2.2 percent as the output gap closes. However, the current account deficit is expected to widen to around 2.5 percent of GDP in the medium term due to investment-related imports.
External Position
The external position is assessed to be broadly in line with fundamentals, with a competitive real effective exchange rate and rising export shares in key markets. Reserve coverage has improved following the Eurobond issuance and is expected to reach 98 percent of both short-term debt and the IMF ARA metric in 2018.
Labor Market
The labor market is improving, with average monthly gross wages increasing towards productivity levels. Labor productivity has been growing at a rate higher than that of average annual wage growth, leading to a narrowing of the gap between productivity and wages.
Overall Outlook
Overall, the outlook for the Former Yugoslav Republic of Macedonia is positive, driven by a recovery in investment, higher exports, and planned infrastructure investment. However, there are risks associated with external factors, such as potential changes in global trade policies, and domestic factors, including the impact of the COVID-19 pandemic on the economy.