Macedonia Country Dashboard – 2018 Q2 update:

Macedonia’s economy returned to higher growth in Q2 2018, with real GDP increasing by 3.12 per cent in YE terms and 1.14 per cent over the year (YOY).

Q2 2018 marked a return to higher growth for Macedonia as can be seen in graph 1 below.

Wholesale and retail trade (12.7 per cent YE) and Manufacturing (5.8 per cent) continued their recent trends of strong growth. Construction continues to offset growth (‑12.9 per cent) while Information and Communications had its fourth quarter of decrease (-9.5 per cent). Agriculture was unusually flat for the quarter (0.3 per cent YE).

Despite the continued downward trend in construction there are some positive signs with some leading indicators: value of issued construction permits, increasing by 98 per cent on last quarter (graph 2).

Graph 2:

In expenditure terms, exports again led the way with a 13.7 per cent increase (YE) while household final consumption was up by 1.5 per cent. Gross capital formation continued its downward trend with a -11.3 YE decrease.

Foreign direct investment by direct investors decreased slightly by -6.8 per cent in the quarter (graph 3). Foreign direct investment by direct investors represents additional money from overseas being invested in Macedonia (either in new or existing projects).

Unemployment again improved slightly in the quarter and now stands at 21.1 per cent.

Graph 3:

Update to annual figures:

The 2017 figures for a number of the dashboard indicators were released during the quarter: the updated indicators are highlighted in table 1 below. The biggest change to note was the 26 per cent decrease in FDI as a percentage of GDP. FDI as a percentage of GDP has now fallen below our 5 per cent target. The fall reflects the divestment in the last two quarters of 2017 likely caused by foreign investor certainty over the political instability earlier in the year. FDI has since recovered in early 2018 (graph 4).

Average GDP growth over the five years to 2017 is 2.7 per cent level. This is solid growth but is below our target of 4-5 per cent.

Graph 4:

Table 1: Macedonia Country Dashboard

Article by Brendan Filipovski, Research Manager

Macedonia Country Dashboard – 2019 Q1 update

2019 Q1 continued the recent trend in upward growth (4.1 per cent YoY), pushing up the annual-average growth to 3.4 per cent (graph 1).

In production terms, all sectors except IT and Communication and Finance and Insurance made positive contributions. Wholesale and Retail Trade made the biggest contribution (1.3 percentage points), followed by Agriculture (0.65 percentage points) (graph 2). Agriculture increased 13.6 percent YoY, the biggest increase since 2013 Q4.

In expenditure terms gross capital formation led the way with a 9.9 percent increase YoY and a 4.2 percentage point contribution to GDP. Household consumption increased 2.6 percent YoY while Government spending was flat.

Unemployment

Unemployment continues to trend down with unemployment now at 17.8 percent.

FDI

Total inward FDI flows decreased by €280m to €29.7m in Q1 2019, falling below the five-year (€75m) and ten-year (€65m) averages. The large decrease was driven by historically larger reverse investment results for Q4 2018 (inflow) and Q1 2019 (outflow). Between the two quarters, reverse investment decreased by €334m, changing from an inflow to an outflow.

In Q4 2018, reverse investment was a €208m inflow, which is the largest inflow over the last five years. On the other side, the Q1 2019 result, a €127m outflow, was the largest outflow in the last five years. The movement between the two outliers was €334m, more than ten times the total net FDI inflow for Q1 2019. The five year average for reverse investments is a €3m outflow.

A reverse investment outflow is when an FDI company invests in or lends money to its parent company. A reverse investment inflow is when a parent company lends money or buys more equity its FDI company. Without access to individual company figures, it is difficult to determine what drove the recent big swing in reverse investments. It is important to note however that reverse investments are volatile and regularly swing between inflows and outflows.

Direct investment by direct investors (i.e. new initial investment by investors) increased over the quarter by €77m. This is encouraging as direct investment by direct investors represent new FDI relationships, which increases the current and potential future stock of FDI.

Over 12,000 jobs were created in the fourth quarter, with unemployment falling to 19.4 per cent. The average unemployment rate for 2018 was 20.7 per cent.

Macedonia Country Dashboard – 2019 Q2 Update

  1. Gross domestic product:

The economy continued its recent trend of consistent growth with real GDP growth of 3.1 per cent YoY for Q2 2019 (graph 1).

Graph 1: Real GDP growth, quarterly data

In production terms, Wholesale and Retail Trade made the largest contribution to growth (1.49 percentage points), growing 7.5 percent YoY (graph 2). IT and Communication and Finance and Insurance had a negative contribution to growth for the second quarter in a row (-0.3 percentage points).

In expenditure terms, all categories increased except general government final expenditure, which remained same.

Graph 2: Contribution to GDP growth in Q1 2019, by production sector

  1. Labour market 

The labour market of Macedonia improved in Q2 2019 continuing the current trend. The activity rate of population aged 15-64 increased slightly to 66.1 percent (from 65.3 percent a year ago). The employment rate reached 54.4 percent (from 51.3 percent, a year ago). Unemployment continued to trend down with unemployment now at 17.6 percent, down from 21.4 percent in Q2 2018. Around 35 thousand jobs were created in the quarter on net basis.

  1. Consumer prices

The consumer prices index increased by 0.3% in Q2 2019. 

  1. FDI

Total inward FDI flows decreased to €6.12m in Q2 2019, with reverse investment weighing against the overall result (see Graph 3). Direct investment by direct investors (i.e. new initial investment by investors) increased to €129m, by 50.3 percent from Q1.


A reverse investment outflow is when an FDI company invests in or lends money to its parent company. A reverse investment inflow is when a parent company lends money or buys more equity in its FDI company. Without access to individual company figures, it is difficult to determine what drove the recent big swing in reverse investments. It is important to note however that reverse investments are volatile and regularly swing between inflows and outflows.


Country Dashboard

Table 1: North Macedonia Country Dashboard

Macedonia Country Dashboard – 2019 Q3 update

  1. Gross domestic product:

Thе third quarter saw another positive result (3.6 per cent YoY) continuing the trend of strong growth so far this year (graph 1).

In production terms, all sectors had a positive contribution except manufacturing which decreased slightly. The biggest contributor was wholesale and retail trade (0.9 percentage points) which grew 4.9 percent YoY, followed by mining and utilities (0.85 percentage points) which grew 6.8 percent, and construction (0.5 percentage points) which grew 5.5 percent (graph 2).

In expenditure terms, all categories increased except general government final expenditure, which was flat.

  1. Labour market (15 to 64)

Positive developments in the Macedonian labour market continued in Q3 2019. The activity rate increased slightly to 66.2 percent (from 65.7 percent a year ago). The employment rate reached 54.8 percent (from 51.9 percent, a year ago). Unemployment continued to trend down with unemployment now at 17.3 percent (from 21 percent, a year ago). Around 5 thousand jobs were created in the quarter on net basis.

  1. Consumer prices

The consumer prices index increased by 0.3% in Q3 2019 compared to the previous quarter.

  1. FDI

Total inward FDI flows increased to €74m in Q3 2019, with the main driver a reduction in reverse investment outflows (see graph 3)[mfn]A reverse investment outflow is when an FDI company invests in or lends money to its parent company. A reverse investment inflow is when a parent company lends money or buys more equity in its FDI company. Without access to individual company figures, it is difficult to determine what drove the recent big swing in reverse investments. It is important to note however that reverse investments are volatile and regularly swing between inflows and outflows.[/mfn]. Direct investment by direct investors (i.e. new initial investment by investors) decreased compared to Q2 but remained at a relatively high level.

  1. PISA (Programme for International Student Assessment)

On 3 December, the PISA results for 2018 were released. PISA is a triennial assessment of the mathematical, reading, and science abilities of fifteen-year-olds within and across countries. After the poor performance and deterioration in the PISA 2015 (relative to 2000), the 2018 results show an increase in performance in all three subjects compared to 2015 and to 2000. Macedonia has improved and is better today than in 2000. There is still much ground to make up though as Macedonia’s ranking against its Dashboard peer countries is static, having surpassed only Georgia since 2015, and it still lags the OECD average by a large margin. The OECD average for 2018 for all three subjects was 488 while North Macedonia’s was 400. China is the leading country with a score of 579.

  1. Ease of Doing Business

The World Bank released its latest Ease of Doing Business report in October. Macedonia’s scores for each category and overall was largely identical to last year but because of improvements in other countries previously ranked lower, Macedonia was displaced from 10th to 17th. In terms of the peer countries, Georgie remains in the top ten while Mauritius has made improvements and has overtaken Macedonia. Macedonia would need to re-engage efforts in making further improvements to regain its top ten ranking.

Macedonia Country Dashboard – 2019 Q4 update

1. Gross domestic product:

GDP growth in 2019Q4 was relatively high at 3.4 percent YoY, contributing to the 3.6 percent annual growth for the year (graph 1).

Graph 1: Real GDP growth, quarterly data

Source: State Statistical Office of Macedonia

In production terms, all economic sectors had a positive contribution for the quarter except manufacturing and mining. The biggest contributor was wholesale and retail trade (1.43 percentage points) (graph 2).

From the expenditure side, household consumption was the strongest driver of the growth contributing 3.7 percentage points to the overall growth rate. On the other hand, gross capital formation was the expenditure category with most negative effect  (-1.1 percentage points).

Graph 2: Contribution to GDP growth by production sector

Source: State Statistical Office of Macedonia

2. Labour market (15 to 64)

Labour market data show positive developments in Q4 2019. The employment rate continued its upward trend in Q4, reaching 55.7 percent. Unemployment continued to trend down with unemployment at 16.8 percent for the quarter (from 19.6 percent, a year ago). Over eleven thousand jobs were created in the quarter. The unemployment rate for the whole year 2019 was 17.4 percent

3. Consumer prices

The consumer prices index increased by 0.7% YoY in February 2020.

4. FDI

Total inward FDI flows increased to €176.5m in Q4 2019 (graph 3). Overall net FDI inflows in 2019 amounted to only €290.6m, which is 51 percent decline compared to 2018.

Graph 3 Foreign Inward Direct Investments Flows – Macedonia

Source: NBRM

5. Country Dashboard indicators

In Q4 2019, two important indicators from the Country Dashboard were published/updated:

Democratic Freedom (from Freedom House)

Macedonia’s score for democratic freedom was unchanged for 2019. Macedonia is rated as “Partly Free” with corruption and pressure on journalists being the main negatives.

Corruption Perception Index (Transparency International)

Macedonia fell thirteen places to 106 in the world in terms of corruption. Its score of 35 was the average score for Eastern Europe and Central Asia. The score is from a scale of 0 to 100 with 100 being very clean and zero being very corrupt.

Country Dashboard

Table 1: Macedonia Country Dashboard

Country Dashboard – Q1 2020

Several years after the introduction of the Country Dashboard, in 2020 we conducted an audit process to make it even more relevant in the current global and domestic economic and social context, as well as in line with the desired future of the country (mainly accession to the EU). The revision consisted of two main processes: (i) a careful review of the economic growth indicators used for monitoring progress, with the aim of keeping the list of indicators as short as possible and maintaining simplicity, and (ii) identifying the right countries to compare to. The process was conducted by the Growth Committee of Macedonia2025, which is made up of top domestic and foreign experts. Small changes were made in the indicators to reflect changes in the economic and social environment and key areas where increased focus and improvement is needed. In relation to peer countries, a ranking of 19 countries has been prepared, which is used as a starting point for assessing the country’s progress.

The Macedonian economy showed modest results in Q1 2020, measured by the main macroeconomic indicators, such as gross domestic product (GDP), labor market developments,foreign trade, etc.

Gross domestic product

GDP growth in Q1 2020 amounted to 0.2% in comparison with the same quarter of the last year (Graph 1). Given the data available so far, alongside the health and economic consequences of the corona crisis, it is expected that the negative effects of the crisis will be strongest in the second quarter of the year, and the process of economic recovery will take a long time.

Graph 1: Real GDP growth, quarterly data for 2019 – 2020

Source: State statistical office of the Republic of North Macedonia

Labor market (15 – 64 yrs.)

Labor market data show positive developments in Q1 2020. The employment rate increased compared to the same period in 2019, reaching 55.6 percent, although it decreased slightly compared to Q4 2019 (Graph 2). Unemployment continued with the downward trend, dropping to 16.4% for the first quarter of 2020 (from 18.1%, in the same quarter from the previous year). However, considering the developments in the Macedonian economy in the second quarter of 2020, we expect these data to be subject to negative changes.

Graph 2: Unemployment and employment rates, quarterly data 2017 – 2020

Source: State statistical office of the Republic of North Macedonia

Foreign trade

Total foreign trade in Q1 2020 decreased by 5.6% compared to the same period last year. Negative movements were felt in both exports and imports. After the observed solid growth of exports in the overall monitoring period (2016-2019), we note a decrease in export parameters in the last two quarters, namely Q4 2019 and Q1 2020. The reduced exports is due to negative developments on both the supply and demand side. Namely, in Q1 2020, the companies first faced a shortage of certain raw materials imported from China, which reduced their production and exports. But already in the second half of March (and especially in April) there was a decrease in demand, both domestic and foreign, and, consequently, reduced exports. Economic restrictions in almost all countries (and our largest trading partners), slowed the flow of goods and services, travel bans, etc., strongly affected the foreign trade (especially in April and May). During this period, imports also decreased by 3.6% compared to Q1 2019.

Graph 3: Exports growth rate, quarterly data 2016 – 2020

Source: State statistical office of the Republic of North Macedonia

FDI – Foreign Direct Investment

Total FDI inflows in Q1 2020 amounted to € 132.7 million. This is still on a level about three times higher compared to Q1 2019, although it is a significant decrease compared to the inflows from the previous quarter. Given the overall economic – health developments, it is expected that inflows in Q2 2020 will decline.

Graph 4: Foreign direct investment inflows (EUR million), quarterly data 2017- 2020

Source: National Bank of the Republic of North Macedonia

Attached is the detailed Country Dashboard, with the latest available data.

Country Dashboard – Q3 2020

The economic situation in Q3 2020 has slightly improved after the very poor results in Q2 2020. However, it is still early to talk about recovery, and the uncertainty is still high.

Gross domestic product

GDP growth in Q3-2020 was -3.3% compared to the same quarter last year (Graph 1). This performance is better than most projections for the third quarter, including Macedonia’s 2025 projection for a 4.5% -6.5% economic downturn, probably due to significant fiscal intervention in the economy. According to expectations, the negative effects of the crisis proved to be the strongest in the second quarter of the year, and the recovery process will be over a longer period of time. The last projection of the Ministry of Finance for the Macedonian economy in 2020 is -4.4%, with a recovery of 4.1% in 2021. On the other hand, the National Bank recently came up with new but also lower projections, with a 4.9% economic downturn in 2020 and a slower recovery of 3.9% in 2021. According to these projections, the country would return to the pre-crisis level of economic activity in 2022.

Graph 1: Real GDP growth, quarterly data for 2019 – 2020

Source: State Statistical Office

Positive development in Q3 2020 is the high level of gross investment of 29.3% of GDP, although it is still lower by 1.7 p.p. compared to Q3 2019 when it was 31% of GDP.

Labour market (15 to 64 years)

Labor market data, as expected, show mixed results in Q3 2020. On the one hand, the employment rate decreased compared to the same period in 2019 reaching 54.1%, continuing the downward trend started in the first quarter of 2020 (Graph 2). But, on the other hand, the unemployment rate in Q3 2020 (16.7%) decreased compared to unemployment a year ago (17.3%). The detailed analysis of employment shows that in Q3 2020 about 13.7 thousand jobs were lost compared to the same period in 2019, but with a large difference between the sexes: the number of employed women increased by 3.3 thousand, with which the rate of Women’s employment has increased, while the number of employed men has decreased by about 17 thousand.

Graph 2: Unemployment and employment rates, quarterly data 2017 – 2020

Source: State Statistical Office

Foreign trade

Total foreign trade in Q3 2020 decreased by 2.6% compared to the same period last year. Negative movements were felt in both exports and imports. After the solid growth up to Q3 2019, we notice a decrease in export parameters in all consecutive quarters, starting from Q4 2019 to Q3 2020. Initially, the reduced export in Q1 2020 was due to negative movements on both the supply and demand side, where companies first faced a shortage of certain raw materials imported from China, which reduced their production and exports. However, already in the second half of March (and especially in April) there was a decrease in demand, both domestic and abroad, and, consequently, reduced exports, and this sharp decline can be seen in the figures for Q2 2020 (Chart 2) . The latest available data for Q3 2020 still indicate a slower flow of goods and services. In the period Q2 2020 – Q3 2020, imports also decreased, by 31.9% and by 3.5% compared to their respective quarters of 2019.

Graph 3: Exports growth rate, quarterly data 2018 – 2020

Source: State Statistical Office

FDI – Foreign Direct Investment

Total FDI inflows in Q3 2020 have a negative sign of €17.8 million. This is the second consecutive quarter where FDI recorded negative growth in inflows. These FDI movements are in line with global financial flows and the general reservations of existing and new potential investors about entering into new investments or upgrading existing ones. Given the uncertainty prevailing in global financial markets and the inability of major economic players to secure a restart of supply and demand, a longer recovery period can be expected.

Graph 4: Foreign direct investment inflows (EUR million), quarterly data 2017- 2020

Source: National Bank of the Republic of North Macedonia

The other two indicators for which data are available, and are an integral part of the Matrix, are:

– Rule of law, where Macedonia is declining in terms of ranking for 2019, due to the deterioration of the assessment of dealing with systemic corruption and fair implementation of laws in court proceedings; and

The index for protection of the environment, which is increasing, i.e. improvement in the ranking in relation to the 180 countries that are part of this index. However, the progress in the ranking is not the result of an improved situation in the country, but of a larger setback in other countries. Namely, the assessment for Macedonia for 2018 (data are valid for 2 years) is 61.06 points (on a scale of 0-100), and for 2020 it is 55.4 points.

Attached is the detailed Country Dashboard, with the latest available data.  ­