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Macedonia Business Forecast Report Q4 2014

  • September 2014
  • -
  • Business Monitor International
  • -
  • 38 pages

Core Views
The exclusion of the main opposition Social Democratic Alliance from Macedonia’s policy-making process spells trouble for the political risk profile down the line. Should the status quo be upheld for a prolonged period of time, this would hurt the legitimacy of the ongoing reform process and jeopardise Macedonia’s EU membership ambitions.
Political and external headwinds will see economic growth in Macedonia gradually decelerate in 2014 and 2015, keeping forecasts well below consensus. However, an improvement in domestic conditions will see a return of positive fixed investment growth and steady household consumption growth, ensuring a continued recovery of
the economy as a whole.

A more expansionary fiscal policy in 2014 and next in Macedonia will not derail the broader trend of the deficit narrowing over the coming years. However, the adoption of a revised budget in September means a higher fiscal deficit than we previously assumed in 2014.

Major Forecast Changes
We have raised our 2014 real GDP growth forecast from 2.5% to 2.7% and have lowered our 2015 growth forecast from 2.8% to 2.5%. W e have lowered our goods exports growth forecast for 2014 from 9.0% to 6.0%, informing our expectations of a sharper widening of the trade deficit to 22.0% of GDP this year (from 20.7% previously).
The implementation of budget changes in September has seen us change our fiscal deficit forecast from 3.8% of GDP to 4.4% in 2014.

Table Of Contents

Macedonia Business Forecast Report Q4 2014
Executive Summary. 5
Core Views..5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Domestic Politics . 8
Opposition Walkout Bodes Ill For Political Stability8
The exclusion of the main opposition Social Democratic Alliance from Macedonia's policy-making process spells trouble for the political
risk profile down the line. Should the status quo be upheld for a prolonged period of time, this would hurt the legitimacy of the ongoing
reform process and jeopardise Macedonia's EU membership ambitions.
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
Economic Recovery Will Underwhelm Amid Lingering Headwinds.14
Political and external headwinds will see economic growth in Macedonia gradually decelerate in 2014 and 2015, keeping forecasts
well below consensus. However, improvement in domestic conditions will see a return of positive fixed investment growth and steady
household consumption growth over the coming years, ensuring a continued recovery of the economy as a whole.
TABLE: Real GDP Growth Forecasts .14
TABLE: GDP By Expenditure...15
Balance Of Payments . 17
Current Account Deficit Narrowing To Continue As Private Transfers Rise...17
Current transfers will offset a widening trade in goods deficit over the coming years, ensuring a steady narrowing of Macedonia's current
account deficit. Even with imports climbing amid stronger domestic demand, Macedonia's export competitiveness will preclude a more
rapid widening of the trade deficit, allowing stronger current transfers inflows to shrink the current account shortfall over the coming
years.
TABLE: Current Account ..17
Fiscal Policy 19
Fiscal Consolidation To Remain On Track19
A more expansionary fiscal policy this year and next in Macedonia will not derail the broader trend of the deficit narrowing over the
coming years. However, the adoption of a revised budget in September means a higher fiscal deficit than we previously assumed in
TABLE: Fiscal Policy19
Regional Monetary Policy .. 21
ECB Easing: Signs Of Growing Anxiety.21
The ECB has embarked on additional monetary easing at the September meeting, earlier than we had expected. The ECB's almost
knee-jerk reaction to the longstanding deterioration in headline inflation and macro data suggests that the central bank has started to
backpedal fast, having previously played down the risks of deflation.
Chapter 3: 10-Year Forecast... 25
The Macedonian Economy To 2023 25
Pursuit Of Continued Reforms Will Support Steady Return To Growth..25
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 Forecasts25
Chapter 4: Business Environment. 29
SWOT Analysis 29
BMI Business Environment Risk Ratings.. 29
Business Environment Outlook. 30
TABLE: BMI BUSINES AND OPERATION RISK RATINGS30
TABLE: BMI LEGAL FRAMEWORK RATING.31
Infrastructure... 32
TABLE: LABOUR FORCE QUALITY..32
TABLE: EMERGING EUROPE - ANUAL FDI INFLOWS.33
TABLE: TRADE AND INVESTMENT RATINGS.34
Market Orientation... 35
TABLE: TOP EXPORT DESTINATIONS35
Operational Risk.. 36
Chapter 5: BMI Global Assumptions. 37
Global Outlook. 37
Eurozone Downgrade On Poor Q214..37
Table: Global Assumptions.37
Table : Devel oped States , Real GDP GrowtH, %...38
Table : BMI VERSUS BLOO MBERG CONSENSUS REAL GDP GROW TH FORECASTS, %. 38
Table : Emerging Mar kets , Real GDP Growth , %..39

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