Quarterly economic monitor – projections Q2 – 2020

Analysis and publications

Macedonia 2025 forecast: The decline in GDP in Q2 2020 will be between 12% and 14%

According to the latest high frequency indicators and available data, we predict the highest decline in the Gross Domestic Product since 1990, as a result of the health and economic crisis.

The projection is due to the following economic developments in Q2 2020:

Production side:

Industrial Production: The negative growth of the industrial production from the first  quarter of 2020 continued in the second quarter with an even greater intensity. In particular, the average decline of the industrial production in the first two months of Q2 was 30.2%. This development was expected, given the ongoing health and economic crisis in the world and in Macedonia. A more detailed analysis indicates that the decline is on a broad basis, i.e. a decline is registered in all industries, except the pharmaceutical and chemical industries, as well as the production of computer, electronic and optical products. However, there are slight positive prospects for the industrial production for June, having in mind the gradual re-opening of the Macedonian economy after the first Corona virus wave, as well as the improving outlook of our largest trading partner – Germany.

Industrial production data indicate that industry will have a negative contribution to GDP growth in the second quarter of 2020.

Graph 1: Industrial production, change rates

Source: State Statistical Office of North Macedonia

Trade: Industrial production developments are also reflected in trade. As Graph 2 shows, the high positive rates present in 2019 are discontinued in the first two quarters of 2020. Total trade decreased by 33% in the period April-May 2020, with the decline being due to all three components (retail trade, wholesale trade and motor vehicles), but mostly due to a large decline in the wholesale trade. These developments in the retail trade are in line with the data on tax revenues based on VAT in the government budget, which recorded a similar decline. Considering that the worst period is probably over, improvement is expected in June, i.e. reduction in the negative growth rates of trade. Still, trade developments will have a strong negative contribution to GDP in Q2.

Graph 2: Trade, change rates

Source: State Statistical Office of North Macedonia

Construction: The completed construction works in April 2020 decreased by 14.9% compared to April 2019. However, having in mind that Macedonia is in a pre-election period, for May and June we expect stabilization, i.e. low negative growth rates in the construction sector. Such developments, coupled with the relatively low realization of capital investments in April and May 2020, indicate a negative contribution of the construction sector in the second quarter of 2020.

Graph 3: Completed construction works, change rates

Source: State Statistical Office of North Macedonia 

Tourism: As can be seen in Graph 4, tourism in April 2020 marks a complete shutdown/stagnation. Having in mind that the situation was similar in May 2020, we expect the first positive developments to be visible in June 2020. Such developments, supplemented by zero turnover in catering (due to the state-imposed lockdown of restaurants and hotels), indicate a strong negative contribution to GDP.

Graph 4: Tourism, change rates

Source: State Statistical Office of North Macedonia

Expenditure side:

Foreign Trade: The value of exports in April and May of 2020 registered a large decrease of 49.5%, while imports dropped by 43.7%. This data reflects the developments in the real sector, as well as the state of the economy of our largest trading partner – Germany. Volumes of international trade declined by similar rates.  Taking this into account, as well as the expectations that in June exports and imports will record slightly lower (but still double-digit) rates of decline, in the second quarter of 2020 we expect a negative contribution of net exports to GDP growth.

Graph 5: Foreign trade, change rates

Source: State Statistical Office of North Macedonia

Private consumption: The health and economic crisis has not affected the banking sector. According to the National Bank, lending to the private sector in April and May 2020, unexpectedly, continued to grow with 5.9% on an annual basis. Deposits also showed solid growth, while non-performing loans have not changed significantly. However, the great uncertainty from the health and economic crisis indicates the great restraint of citizens for consumption and a moderate negative contribution of the private consumption to GDP.

Gross investments: The developments in gross investments in the period April-May are in line with other developments in the real sector.

Having in mind that the developments in the construction sector are slightly better than those of the other sectors in the economy, and taking into consideration the current pre-election period in which capital investments financed by the budget usually accelerate, the negative contribution of gross investments in total growth will be moderate. Downward risk are the developments in the import of equipment and machinery, where a decline of 50% was recorded in the analyzed period.

Graph 6: Loans to the private sector, change rates

Source: State Statistical Office of North Macedonia