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Macedonia Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 47 pages

Core Views

Political risk in Macedonia will remain high, particularly as the country'sinstitutional commitment to EU convergence and ambitions forformal membership will be tested by the handover of power fromthe prime minister to a technocratic government in January, aheadof an early election in April.A competitive business environment, strengthening domestic demandconditions and robust external demand for Macedonia's manufacturedgoods will see the economy remain a regional outperformer.A robust export sector and low energy prices will see Macedoniarun a considerably smaller current account deficit over the comingyears than in previous years.Major Forecast ChangesWe have lowered our real GDP growth forecasts for Macedonia to3.2% and 2.8% in 2015 and 2016 respectively, from 3.5% growthfor both years.Major revisions to official primary income data, along with a strongerthan-expected export performance in the first nine months of 2015,have seen us revise our 2015 and 2016 current account deficitforecasts to 0.1% of GDP (from 1.2% and 1.1% respectively).

Table Of Contents

Macedonia Country Risk Report Q1 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
EU Policy Anchor Not Enough To Unwind Political Risk8
Political risk in Macedonia will remain high, particularly as the country's institutional commitment to EU convergence and ambitions for
formal membership will be tested by the handover of power from the prime minister to a technocratic government in January, ahead of
an early election in April Even with a recommendation by the European Commission to initiate the accession process, Europe's migrant
crisis and the unresolved name dispute with Greece mean that EU membership will carry only limited policy incentives
TABLE: POLITICAL OVERVIEW8
TABLE: EASTERN EUROPE AND CENTRAL ASIA - CORRUPTION PERCEPTIONS INDEX 9
TABLE: A CHRONOLOGY OF MACEDONIA'S POLITICAL CRISIS10
Long-Term Political Outlook 11
Unresolved Name Dispute And Ethnic Tensions Pose Long-Term Risks11
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
Regional Analysis: Migration 13
Lack Of Regional Response Escalating Impact Of Migrant Crisis13
The ongoing migrant crisis will continue to place severe strains on the functioning of EU institutions, domestic political relations and
social cohesion across the continent With no united policy at a regional level, or agreement among parties domestically on how to
tackle the crisis, social tensions are bound to increase , raising political risk across the European Union
Chapter 2: Economic Outlook 17
SWOT Analysis 17
BMI Economic Risk Index 17
Economic Growth Outlook 18
Strong Fundamentals Will Ensure Regional Growth Outperformance18
A competitive business environment, strengthening domestic demand conditions and robust external demand for Macedonia's
manufactured goods will see the economy remain a regional outperformer However, a more challenging growth environment in
emerging markets, followed by recent downward revisions to our euro area growth forecasts mean that we are paring back our real GDP
growth projections for Macedonia in the coming years
TABLE: REAL GDP GROWTH, % 18
GDP By Expenditure Outlook 20
TABLE: GDP GROWTH FORECASTS20
TABLE: PRIVATE CONSUMPTION FORECASTS20
TABLE: GOVERNMENT CONSUMPTION FORECASTS20
TABLE: FIXED INVESTMENT FORECASTS20
TABLE: NET EXPORTS FORECASTS20
Fiscal Policy and Public Debt Outlook 21
Stable Fiscal Outlook Despite Political Uncertainty21
Prudent fiscal policy and a robust economic growth environment will see Macedonia's budget deficit narrow and underpin the country's
stable sovereign credentials While the prospect of renewed political instability threatens political commitment to fiscal consolidation,
sound macroeconomic fundamentals will ensure a stable fiscal position over the coming years
Structural Fiscal Position 23
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES (2014)23
External Trade And Investment Outlook 24
Small C/A Deficit Will Bolster External Position24
A robust export sector and low energy prices will see Macedonia run a considerably smaller current account deficit over the coming
years than in previous years This will bolster the country's external position by reducing its reliance on external financing
TABLE: CURRENT ACCOUNT BALANCE24
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE25
TABLE: TOP 5 GOODS EXPORTS IN 201426
TABLE: TOP 5 GOODS IMPORTS IN 201426
Chapter 3: 10-Year Forecast 29
The Macedonian Economy To 202429
Continued EU Commitment Will Support Steady Growth29
Macedonia's reformist trajectory will ensure solid GDP growth will continue through to 2024 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 FORECASTS29
Chapter 4: Operational Risk 31
SWOT Analysis 31
Operational Risk Index 31
Operational Risk 32
TABLE: SOUTH EAST EUROPE - LABOUR MARKET RISK32
TABLE: SOUTH EAST EUROPE - LOGISTICS RISK36
TABLE: SOUTH EAST EUROPE - CRIME AND SECURITY RISK40
TABLE: SOUTH EAST EUROPE - TRADE AND INVESTMENT RISK41
TABLE: MAIN IMPORT PRODUCTS, 201244
Chapter 5: BMI Global Macro Outlook 45
Global Outlook 45
Emerging Markets Bending, Not Breaking45
TABLE: GLOBAL ASSUMPTIONS45
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %46
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 46
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %47

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