Economic Growth and Employment in Q1, 2020

Analysis and publications

The Macedonian economy achieved modest results in Q1 2020, with a GDP growth of 0.2%. Although a deceleration of economic growth was expected, this result is lower than the projections and expectations, including the projections of Macedonia2025. High-frequency data such as trade, construction, foreign trade data, etc., for the months of January-March indicated a higher growth rate of production, especially given that the negative effects began to be felt in the second half of March. The low performance in Q1 2020 is partly due to the higher growth that was achieved in Q1 last year (Figure 1). For comparison, Eurostat data for the 27 EU member states indicate an average GDP decline of -2.5% for the EU member states for the first quarter of 2020. For the countries in the region, data is available only for Serbia where GDP growth in Q1 2020 reached 5%.

Figure 1: Quarterly real GDP growth rates, in %

Source: State Statistical Office of North Macedonia

Figure 2 shows the growth rates of the expenditure components of GDP. Only final consumption recorded a positive growth rate of 1.5%, mainly due to a 2.4% increase in public spending, although private consumption also increased by 1.2%. Hence, final consumption is the only positive driver of growth, contributing 1.3 percentage points to the overall growth rate. On the other hand, net exports and gross investment negatively affected economic growth by – 0.9 and – 0.2 percentage points, respectively. This is generally due to the stagnation in international trade as a result of reduced supply and demand for products and services, both in Macedonia as well as in all other countries (and our largest trading partners).

Figure 2: GDP growth rates by expenditure approach, Q1 2020

Source: State Statistical Office of North Macedonia

GDP data by the production approach show that five sectors of the economy recorded a positive growth and contributed to the GDP growth in Q1 2020. Among them, the sectors with the most significant positive effect on GDP are: Real estate activities with 0.8 percentage points contribution to growth and Information and communication with contribution to the added value of 0.7 percentage points. The biggest decline, on the other hand, was recorded by the Mining, Manufacturing, Electricity and Waste management sectors, with a decline in production in Q1 of 5.1% (Figure 3). Although certain segments of trade registered growth in January-March (mostly sectors for production of food and soft drinks), trade as a whole had a negative growth rate in Q1.

Figure 3: Real GDP growth rates by sectors of production, Q1 2020

Source: State Statistical Office of North Macedonia 

Despite the unfavorable developments of production in Q1 2020, the labor market continued the positive trend. According to the theory and practice, GDP developments (production side) affect employment and the labor market with a certain time lag. As Figure 4 shows, the unemployment rate fell to 16.4% in Q1, from 18.1% a year ago. At the same time, the employment rate increased by 1.7 percentage points to 55.6%, compared to the same quarter last year.

Figure 4: Labor market indicators (population aged 15-64, in %)

Source: State Statistical Office of North Macedonia

According to the projections and forecasts of domestic and foreign economic institutions, and the Government, the largest decline in GDP is expected in the second quarter of 2020, in the period when the crisis intensified, and the strongest restrictive measures for operation of certain industries were in effect.

The government has so far adopted three packages of anti-crisis measures to reduce the negative effects of the pandemic on production, employment and living standards. Macedonia 2025 has prepared three policy contributions as a support and guidance for economic policies, and participated in two projects from the International Labor Organization (ILO) for analyzing the effects of Covid-19 on the economy and offering policy recommendations.