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Macedonia Country Risk Report Q4 2016

  • September 2016
  • -
  • Business Monitor International
  • -
  • 47 pages

Core Views

Macedonia's December 2016 election will pave the way for a normalisation of politics after years of deadlock, characterised by corruption allegations and major protests. However, political risk will remain elevated, as the scope for renewed stand-offs between the major parties and a stalled EU accession process could see social tensions periodically flare up. Economic growth in Macedonia will slow on account of weaker euro area demand. However, a recovery in fixed investment and strong private consumption growth will lead to renewed growth acceleration from 2018 onwards. Beyond the medium term, Macedonia's manufacturing sector will need to move up the value chain to ensure continued robust growth for the economy.Major Forecast Changes We have lowered our real GDP growth forecast from 3.6% to 3.2% for 2016 amid a disappointing Q116 GDP performance and recent downward revisions to German real GDP growth in light of Brexit.

Table Of Contents

Macedonia Country Risk Report Q4 2016
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Major Forecast Changes.................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook........................................................................................................................................ 8
Manufacturing Diversification Key To Robust Growth Outlook.................................................................................................8
Economic growth in Macedonia will slow on account of weaker euro area demand. However, a recovery in fixed investment and strong
private consumption will lead to renewed growth acceleration from 2018 onwards. Beyond the medium term, Macedonia's manufacturing
sector will need to move up the value chain to ensure continued robust growth for the economy.
TABLE: LONG-TERM ECONOMIC GROWTH FORECASTS...................................................................................................................................8
GDP By Expenditure Outlook.................................................................................................................................. 10
TABLE: GDP GROWTH FORECASTS....................................................................................................................................................................10
TABLE: PRIVATE CONSUMPTION FORECASTS..................................................................................................................................................10
TABLE: GOVERNMENT CONSUMPTION FORECASTS.......................................................................................................................................10
TABLE: FIXED INVESTMENT FORECASTS..........................................................................................................................................................10
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................11
Fiscal Policy And Public Debt Outlook.................................................................................................................. 11
Fiscal Policy On A Sustainable Trajectory.................................................................................................................................11
EU convergence efforts will keep Macedonian fiscal policy on a sustainable path, with robust economic growth leading to a gradual
decline in total public debt as a share of GDP, despite a nominal fiscal deficit of over 3% of GDP over our forecast period.
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...............................................................................................................................................11
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES.............................................................................................................................12
External Trade And Investment Outlook................................................................................................................ 13
Currency Peg A Major Source Of External Stability..................................................................................................................13
Macedonia's currency peg to the euro and exposure to German industrial demand will bolster the external position over the coming
years. A favourable operational environment also means that the country can rely on direct investment as a more stable source of
external funding.
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.........................................................................................................................................13
TABLE: TOP 5 GOODS EXPORTS IN 2015...........................................................................................................................................................13
TABLE: TOP 5 GOODS IMPORTS IN 2015............................................................................................................................................................14
TABLE: CURRENT ACCOUNT BALANCE FORECASTS.......................................................................................................................................14
Chapter 2: 10-Year Forecast................................................................................................................... 17
The Macedonian Economy To 2025........................................................................................................................ 17
Robust Growth Will Moderate Over The Next 10 Years.............................................................................................................17
Structural reforms and a competitive manufacturing export sector will continue to drive robust real GDP growth in Macedonia over the
coming decade, which will be further supported by a strengthening household sector. However, heightened political uncertainty and
shifting demographic trends will restrict potential GDP growth and result in a deceleration by the end of our forecast period.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.....................................................................................................................................17
Chapter 3: Political Outlook................................................................................................................... 21
SWOT Analysis......................................................................................................................................................... 21
BMI Political Risk Index........................................................................................................................................... 21
Domestic Politics .................................................................................................................................................... 22
End Of Political Crisis, But Long Road To Stability...................................................................................................................22
Macedonia's December 2016 election will pave the way for a normalisation of politics after years of deadlock, characterised by
corruption allegations and major protests. However, political risk will remain elevated, as the scope for renewed stand-offs between the
major parties and a stalled EU accession process could see social tensions periodically flare up.
TABLE: POLITICAL OVERVIEW.............................................................................................................................................................................22
TABLE: A CHRONOLOGY OF MACEDONIA'S POLITICAL CRISIS......................................................................................................................23
Long-Term Political Outlook................................................................................................................................... 25
Unresolved Name Dispute And Ethnic Tensions Pose Long-Term Risks...............................................................................25
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 4: Operational Risk................................................................................................................... 29
SWOT Analysis......................................................................................................................................................... 29
Operational Risk Index............................................................................................................................................ 29
Operational Risk....................................................................................................................................................... 30
TABLE: SOUTH EAST EUROPE - LABOUR MARKET RISK.................................................................................................................................30
TABLE: SOUTH EAST EUROPE - LOGISTICS RISK............................................................................................................................................34
TABLE: SOUTH EAST EUROPE - CRIME AND SECURITY RISK........................................................................................................................38
TABLE: MAIN IMPORT PRODUCTS, 2014.............................................................................................................................................................41
Chapter 5: BMI Global Macro Outlook................................................................................................... 43
Global Macro Outlook.............................................................................................................................................. 43
EMs Past The Worst, But Structural Problems Persist.............................................................................................................43
TABLE: GLOBAL ASSUMPTIONS..........................................................................................................................................................................43
TABLE: DEVELOPED STATES - REAL GDP GROWTH, %..................................................................................................................................44
TABLE: EMERGING MARKETS - REAL GDP GROWTH, %.................................................................................................................................45
TABLE: MACROECONOMIC DATA and FORECASTS..............................................................................................................................................47

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