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Macedonia |
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Republic of Macedonia is the constitutional name, used by the UK since 1999 for bilateral and internal purposes. Former Yugoslav Republic of Macedonia is used in multilateral forums such as the EU or UN. Last reviewed: 06 August 2009 |
Country information
ECONOMY
Basic Economic Facts
Basic Economic Facts (according to Vienna Institute for International Economic Studies)
GDP: €6.506 bn (2008) GDP per capita at purchasing power parity €8,200 (2008).
Annual growth: GDP real growth 5% (2008 World Bank estimate)
Inflation: 8.3% (2008)
After gaining independence in 1991, Macedonia faced a number of obstacles to economic growth. These included the 1992-2000 UN economic sanctions on Serbia, 1993-6 Greek trade embargo, 1999 Kosovo refugee crisis and the 2001 internal crisis. The economy finally started to pick up in 2004, maintaining macro-economic stability and modest growth in 2005/6.
The new government elected in 2006 and re-elected in 2008 has put the economy as the cornerstone of its work plan, with emphasis on attracting Foreign Direct Investment (FDI) and enhancing the business climate. A number of reforms, primarily tax and business reform have reduced the grey economy and stimulated economic growth. GDP grew by 5.1% in 2007 - the highest since independence - and continued at in 2008.
However, the global economic crisis also made an impact on the Macedonian economy. Macroeconomic stability worsened in 2008 with a record increase of the current account deficit, depletion of foreign currency reserves and high inflation, partly as a result of the global rise in prices and the credit crunch. Apart from the inflation, which fell to about 1%, the other indicators follow the same trajectory in 2009. GDP fell by 0.9% in the first quarter and is predicted to follow the same downward trend into the second quarter, especially as industrial production continues to fall. In the first five months of the year exports were down by 50%, foreign trade fell by 37% and the trade deficit came close to 1 billion USD. Coupled with the drop of remittances and FDIs (-58%) this led to a further increase of the current account deficit which according to the Central Banks estimates may reach 14% of GDP by the end of the year (compared to 12.7% in 2008).
The Government temporarily solved the budget liquidity problems through issuing short-term treasury bills with high interest rates and 175 million euros worth of Eurobonds, with a 9.9% interest rate (almost 60% of which were purchased by UK investors), as well as with the budget rebalance adopted in April. The liquidity boost will also help build foreign currency reserves and for the time being the pressure is off the Macedonian Denar peg to the Euro. The recent Government reshuffle focused mainly on its economic team and could result in some policy changes such as further serious cuts in expenditure and/or signing of an agreement with the IMF, which has been stalled until now.
Macedonia avoided the world financial crisis mainly because its banking sector and the stock exchange are not very much exposed to the international markets. However, the biggest impact of the global crisis is felt by the Macedonian private sector. The competition of the Government and the Central Bank on the securities market has left Macedonian companies with very limited access to credits. The drop of metal prices on the world market and decreased global demand have forced the metal and textile companies to scale back both production and employment. This has a huge effect on the Macedonian economy, as these two industries are the biggest exporters and employers. The official rate of unemployment in the first quarter 2009 is 32.7%. Given the liquidity problems and the fall of FDIs it would be very difficult to make some more serious investments that could help boost the economy.
