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Macedonia Country Risk Report Q2 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 51 pages

Core Views 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. Macedonia’s political stability will continue to be tested even after a last-minute deal was struck to postpone from April 24 to June 5 an upcoming parliamentary election, which the opposition had threatened to boycott. Major Forecast Changes We have raised our real GDP growth forecast from 2.8% to 3.0% for 2016, but now forecast deceleration to 2.6% in 2017, having previously projected 3.1% real GDP growth. Our current account deficit forecasts for Macedonia have been revised from 0.1% of GDP to 2.0% of GDP for 2016 and 2017 on account of shifting external dynamics since Q415.

Table Of Contents

Macedonia Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Slower Growth Amid Softer Eurozone Manufacturing Activity8
Declining activity in Germany's manufacturing sector and heightened levels of political uncertainty in Macedonia will see economic
growth decelerate in the next two years Strong domestic demand, however, will keep private consumption growth elevated and return
the economy to stronger real GDP growth rate from 2018 onwards
GDP By Expenditure Outlook 10
TABLE: GDP GROWTH FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal And Public Debt Outlook 11
Political Uncertainty Will Slow Fiscal Consolidation11
Steady growth in household spending will ensure strong revenue intakes even despite a deceleration in real GDP growth in 2016 and
2017 This will see Macedonia's fiscal deficit continue to narrow over the next two years, although at a slower pace as heightened
political uncertainty keeps borrowing costs elevated
TABLE: CENTRAL GOVERNMENT BUDGET FORECASTS11
Structural Fiscal Position 13
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES (2015)13
External Trade and Investment 14
Changing External Dynamics Will Reshape Current Account 14
Early indications of slowing export growth to Macedonia's largest export market, Germany, and falling private sector transfers into the
country suggest a broader shift in Macedonia's external accounts is under way Although exports will continue to grow at a steady rate,
political uncertainty along the border with Greece could have more profound implications on net transfers, on which Macedonia is highly
reliant
TABLE: CURRENT ACCOUNT BALANCE15
Outlook On External Position 16
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE16
TABLE: TOP 5 GOODS EXPORTS IN 201517
TABLE: TOP 5 GOODS IMPORTS IN 201517
Chapter 2: 10-Year Forecast 19
The Macedonian Economy To 2025 19
Robust Growth Will Moderate Over The Next 10 Years19
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 FORECASTS19
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index 23
Domestic Politics 24
Political Instability Will Continue To Loom Large24
Macedonia's political stability will continue to be tested even after a last-minute deal was struck to postpone from April 24 to June 5 an
upcoming parliamentary election, which the opposition had threatened to boycott Although we believe that EU convergence will remain
an important policy anchor in the years ahead, the diminishing likelihood of progress towards formal accession to the bloc will test
Macedonia's political will
TABLE: POLITICAL OVERVIEW24
TABLE: A CHRONOLOGY OF MACEDONIA'S POLITICAL CRISIS25
Long-Term Political Outlook 27
Unresolved Name Dispute And Ethnic Tensions Pose Long-Term Risks27
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 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 RISK42
TABLE: MAIN IMPORT PRODUCTS, 201444
Chapter 5: BMI Global Macro Outlook 47
Global Macro Outlook 47
Tail Risks Mounting Amid Sub-Par Growth47
TABLE: GLOBAL ASSUMPTIONS47
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %48
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 48
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %49
TABLE: MACROECONOMIC DATA and FORECASTS51

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