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Macedonia Business Forecast Report Q3 2014

  • June 2014
  • -
  • Business Monitor International
  • -
  • 35 pages

Core Views

Heightened political tensions between the government and the centreleft opposition could once again paralyse Macedonia’s policy-making process and hurt the country’s chances of continued EU integration. Weak domestic demand, heightened political uncertainty and an increased dependence on core eurozone economic growth will cap
the performance of Macedonia’s economy over the coming years. Macedonia’s economic competitiveness and resurgent European demand will continue to see the current account deficit shrink in the coming years. Improving economic conditions and a political commitment to fiscal restraint will see Macedonia’s budget deficit shrink over the coming years.

Table Of Contents

Macedonia Business Forecast Report Q3 2014
Executive Summary. 5
Core Views..5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Domestic Politics.. 8
Post-Election Standoff: Another Crisis In The Making8
Heightened political tensions between the government and the centre-left opposition could once again paralyse Macedonia's policymaking
process and hurt the country's chances of continued EU integration. While a parliamentary walkout by some opposition
lawmakers is more likely to hurt the opposition itself, the latest developments have prompted us to lower Macedonia's Short-Term
Political Risk Rating to 54.6 from 56.3.
table: POLITICAL OVERVIEW..8
Long-Term Political Outlook.. 10
Unresolved Name Dispute And Ethnic Tensions Pose Long-Term Risks...10
Stalled progress on Macedonia's EU accession hopes and lingering ethnic tensions remain major challenges to the county's long-term
stability. Moreover, we note that a deteriorating demographic picture could pose severe economic challenges and exacerbate ethnic
tensions as Macedonian society grows more heterogeneous over the coming decades. A lot will depend on whether the government will
remain committed to economic and political integration with Europe, which has already driven much of the country's reform progress in
recent years.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings... 13
Economic Activity... 14
Economy Facing Renewed Headwinds Amid Ongoing Recovery14
Macedonian economic growth will remain above 2.0% over the coming years as stronger external demand and a gradual recovery in
household spending remain important drivers of growth. However, low confidence and a loo ming political crisis threaten to derail further
EU integration and withhold major foreign direct investment, capping growth potential.
table: Eco nomic Growth Forec ast .14
Balance Of Payments . 16
Limited Current Account Deficit Narrowing Ahead16
Macedonia's economic competitiveness and resurgent European demand will continue to see the current account deficit shrink in the
coming years. That said, a gradual domestic recovery, which will see imports pick up, and the fragile state of the eurozone economy,
mean that the bulk of the economic rebalancing has already occurred, and further current account deficit narrowing will proceed only
moderately going forward.
table: Current Account Balance.16
Fiscal Policy. 18
Fiscal Improvement To Persist Despite Political Uncertainty...18
Improving economic conditions and a political commitment to fiscal restraint will see Macedonia's budget deficit shrink over the coming
years. The threat of l egislative deadlock poses a risk, but for now we believe that a strengthened mandate for the ruling coalition will
ensure policy continuity.
table: Fiscal Policy ...18
Regional Economic Outlook .. 20
Assessing The Aftermath Of ECB Policy Action20
The European Central Bank (ECB) has delivered on nearly all of the policy options that we were expecting for the June 5 meeting.
This is a step in the right direction for warding off the risk of deflation and will be positive for European equities and sovereign bonds.
However, we warn - as we have done countless times during previous easing rounds - that the efficacy of ECB policy action will be
limited absent structural reforms in the eurozone at the national and federal level.
Chapter 3: 10-Year Forecast... 23
The Macedonian Economy To 2023 23
Pursuit Of Continued Reform s Will Support Steady Return To Growth.23
Macedonia's reformist trajectory looks set to generate solid GDP growth through to 2023 amid steady convergence to EU political and
economic standards. Nevertheless, we caution that political uncertainties could yet pose risks to the longer-term outlook.
table: Long-Term Macroeconomic Forecasts23
Chapter 4: Business Environment. 25
SWOT Analysis 25
BMI Business Environment Risk Ratings.. 25
Business Environment Outlook. 26
Institutions... 26
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS26
TABLE: BMI LEGAL FRAMEWORK RATING.27
Infrastructure... 28
TABLE: LABOUR FORCE QUALITY..28
TABLE: EMERGING EUROPE - ANN UAL FDI INFLOWS.29
TABLE: TRADE AND INVESTMENT RATINGS.30
Market Orientation... 31
TABLE: TOP EXPORT DESTINATIONS (USDmn)31
Operational Risk.. 32
Chapter 5: BMI Global Assumptions. 33
Global Outlook. 33
Emerging Market Deceleration33
Table: Global Assumptions.33
Table: Deve loped States , Real GDP Growt H, %...34
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %. 34
Table: Emergi ng Markets , Real GDP Growth , %..35

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