North Macedonia flag North Macedonia: Economic outline

Economic Outline

Economic Indicators

North Macedonia is the poorest of the former Yugoslav republics; however, it has made significant progress in expanding its economy over the past decade: GDP grew an average of 5% annually between 2004 and 2008, driven mainly by domestic consumption and exports (notably metals and textile products). However, following a subdued post-pandemic recovery, economic growth has decelerated due to weakened external demand and more restrained household consumption. The latest estimates from the IMF pointed to a GDP growth of 2.3%, driven by lower external demand and a slowdown in investment. Net FDI inflows are expected to enhance export capacity, while the resurgence of growth in key trading partners will further bolster real growth, reaching 3.2% in 2024 and 3.5% in 2025.

Despite facing high borrowing costs and new spending commitments, public finances were partially relieved by a budget reallocation in September, managing to accommodate additional expenditure without exceeding the full-year deficit target. The government increased the minimum pension and approved a further 10% raise in public sector wages as of September, adding approximately 0.2% of GDP to projected current expenditure for 2023. Revenue, boosted by lingering high inflation, is dampened by subdued domestic demand. However, the Parliament's adoption of a one-off solidarity tax in September is expected to augment 2023 revenue by an additional 0.6% of GDP. Overall, the general government deficit is forecasted to rise slightly in 2023 compared to 2022 (estimated at 4.5% of GDP by Fitch Ratings). If planned fiscal consolidation measures, including phasing out energy subsidies, are executed, the fiscal deficit is anticipated to gradually decrease in 2024 (3.8% of GDP) and 2025 (3.5%), though it will remain significantly above the pre-pandemic level of 2.2% of GDP in 2019. Government debt – at 51.6% last year as per the IMF - is projected to persist above 50% of GDP in the medium term due to elevated primary deficits and increasing interest payments. Annual consumer price inflation, which peaked at 19.8%, gradually declined but remained elevated, averaging around 9% in 2023. Lingering spillover effects from recent peaks in energy and food prices affected domestic sectors. However, inflation is expected to ease to the long-term average of 2% by 2025. The central bank continued to raise the key policy rate in the first nine months of 2023, albeit at a slower pace, reaching 6.3% in September (data EU Commission). While EU accession talks have faced obstacles due to Greece's historical dispute over the country's name, both the EU and Greek authorities commended North Macedonia's parliament for changing it to the Republic of North Macedonia. In March 2020, the EU's General Affairs Council agreed to begin accession negotiations with North Macedonia, and the draft negotiating framework was presented to Member States in July 2020. However, the Bulgarian government's refusal to approve the EU negotiation framework in November 2020 stalled North Macedonia's membership process due to slow progress on implementing the 2017 Friendship Treaty. This hurdle was overcome in July 2022 after North Macedonia and Bulgaria signed a bilateral protocol. Nonetheless, before formal membership talks commence, North Macedonia must amend its Constitution to acknowledge Bulgarians among the nation-building countries listed in its preamble.

Low and decreasing labor force participation, particularly among women and young workers, contributed to a continued reduction in the labor force and a decline in the unemployment rate. According to the EU Commission, employment is anticipated to steadily increase during the forecast period, albeit at a moderate rate (from an unemployment rate of 14% in 2023 to 14% by 2025). Although employment growth in manufacturing industries remained subdued in 2023 due to a backlog of inventories affecting current production, the services sectors, notably trade, are expected to drive the majority of job creation. Consequently, the unemployment rate is forecasted to further decrease as the labor force contracts. However, much of the workforce is employed in the informal economy, thus the exact level of unemployment is hard to assess. According to the latest figures from Eurostat, about a third of North Macedonian citizens live below the poverty line or are at risk of poverty and social exclusion. The country’s GDP per capita (PPP) was estimated at USD 20,162 in 2022 by the World Bank; nevertheless, the income ratio between the richest and poorest 20% of the population is more than eight times, the highest in the EU.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 13.7414.7715.8716.9017.95
GDP (Constant Prices, Annual % Change) 2.21.02.73.73.9
GDP per Capita (USD) 6,6577,1587,6948,1938,702
General Government Gross Debt (in % of GDP) 51.654.554.654.554.0
Inflation Rate (%) 14.29.44.02.52.0
Unemployment Rate (% of the Labour Force) 14.414.314.114.013.9
Current Account (billions USD) -0.840.10-0.13-0.46-0.49
Current Account (in % of GDP) -6.10.7-0.8-2.7-2.7

Source: IMF – World Economic Outlook Database, 2016

Note: (e) Estimated Data

 
Monetary Indicators 20162017201820192020
FYROM Denar () - Average Annual Exchange Rate For 1 GBP 75.2570.3569.5268.6369.40

Source: World Bank, 2015

 

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Latest Update: May 2024

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