Economic Analysis
Macedonia, The Former Yugoslav Republic of

Macedonia, The Former Yugoslav Republic of

Population 2.1 million
GDP per capita 5,481US$
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major macro economic indicators

  2013 2014 2015(f)  2016(f)
GDP growth (%) 2.9 3.5 3.7 3.5
Inflation (yearly average) (%) 2.8 -0.3 0.2 1.1
Budget balance (% GDP) -3.9 -4.2 -4.0 -3.8
Current account balance (% GDP) -1.8 -1.4 -2.0 -2.3
Public debt (% GDP) 38.2 43.5 44.2 46.0


(f) Forecast


  • Integrated into the German production chain
  • Proximity to Central European factories
  • Wage competitiveness
  • Support from international donors
  • High level of remittances from expatriates (19% of GDP)


  • High level of structural unemployment and training shortfalls
  • Large informal economy
  • Inadequate transport infrastructures
  • Significant indebtedness of private sector (93% of GDP at end 2014)
  • Conflictual political landscape
  • Tensions between the Slavic majority and the Albanian minority
  • Negotiations to join the EU and NATO linked to dispute with Greece over the name of the country


Solid growth

Growth, already in excess of 3%, should increase slightly in 2016. The main driving force will remain domestic demand. In an election year, household consumption will be boosted by increased retirement pensions, social transfers and public sector wages (police, in particular). It will also benefit from higher employment thanks to the start-up of a number of foreign factories and subsidised public job schemes. In addition, remittances from workers abroad will continue at a high level. Credit, with 43% of outstandings in euros, should once again see strong expansion thanks to the good health of the banking system and to low interest rates. Public investment in the road and rail transport infrastructures, in energy and healthcare will remain sustained. On the other hand however, company investments, in particular foreign, will remain weak because of the disturbed internal political situation. Exports of car components (cables, electronic circuits), chemical products, plastics, textiles and clothing, construction materials, food grade glass, will feel the benefits of whatever growth there is in Europe. As imports will rise at the same time because of stronger domestic demand, the contribution from trade to growth should remain slightly negative.


Growing public debt

Public finances will remain in deficit. Revenues (28% of GDP in 2014) are burdened by tax evasion, the scale of the informal economy and a single income and corporation tax rate of 10%. On top of this, with the aim of attracting in and retaining foreign investment, these investors are offered 10-year tax exemptions and free access to public services. 80% of public expenditure is for wages, pensions, social transfers and debt interest and therefore offer little flexibility. The recurring deficit and loans contracted by nationalised companies for the construction of infrastructures are at the source of the high level of indebtedness, growing and mainly denominated in euros. The government however is committed to complying, as of the beginning of 2017, with extremely ambitious deficit and indebtedness ceiling of, respectively, 3% and 60%, which we believe will be hard to achieve.


Balance of trade deficit almost counterbalanced by remittances

Despite the rise in exports by foreign owned companies located in the country, the balance of trade remains largely in deficit, at the level of 22% of GDP. This is due to the scale of imports associated with investments, in particular public, as well as buoyancy of internal demand. Remittances from expatriate workers (19% of GDP) and, to a lesser extent, spending by visitors from Turkey, Bulgaria and other European countries cover approximately 95% of the trade deficit. Foreign direct investments account for around 3% of GDP. External debts amount to almost 70% of GDP and are rising because of the external commitments of the public sector and loans linked with foreign direct investments. The exchange rate risk has been limited by pegging the denar to the euro, which has been firmly defended by monetary authorities.


A disturbed political context that may put off investors

Following the 2014 elections, the ruling coalition since 2006, including the Christian-Democrats in VRMO-DPMNE and DUI, the largest Albanian minority party, was returned to power under the leadership of the Prime Minister, Nikola Gruevski. The social-democrat opposition, however, represented by the SDSM, disputed the legitimacy of the elections, and immediately boycotted the parliament. The dispute culminated in spring 2015 with the broadcasting of audio recordings implicating members of the coalition in corruption and election fixing, followed by demonstrations by the Albanian community during which 22 people died. The United States and the European Union reacted quickly. A settlement was agreed in July 2015, including the appointment of a special prosecutor with a team and responsibility for investigating the recordings, the ending of the parliamentary boycott by the opposition and early elections in April 2016 preceded by the creation of an interim government involving members of the opposition. The enforcement of the agreement has been complicated and the elections in April 2016 should not be taken for granted. The effectiveness of European and US pressure has been reduced because of the Greek veto on the country’s membership of the European Union and NATO. Athens refuses to accept its neighbour being called Macedonia, a name that is also that of a Greek region. This situation is leading to caution among investors. Whilst within the Industrial and Technology Development Zones (duty-free areas), foreign companies enjoy significant fiscal benefits and low labour costs, they are faced with a shortage of skilled labour, inadequate infrastructures, insufficient resources allocated to R&D, the slowness of internal payments and of the legal system, as well as corruption. The businesses of foreign companies, the origin of the majority of exports, hardly benefit to local entrepreneurial fabric which remains relatively underdeveloped.         



(Last update : January 2016 )

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