Quarterly Economic Monitor – Projections Q3, 2020

Analysis and publications

Macedonia2025 forecast: The decline in GDP in Q3 2020 will be between 4.5% and 6.5%

According to the latest high-frequency indicators and available data so far, we predict a reduction in Gross Domestic Product from 4.5% to 6.5%, as a result of the incomplete recovery of the economy from the consequences of the COVID-19 crisis and the restrictive measures that limit the growth of the economy.

The projection is due to the following economic developments in the third quarter of 2020:

Production side:

Industrial production: After a sharp decline in the second quarter of 2020, caused by the closure of the economy and the subsequent decline of aggregate supply and demand, industrial production still recorded a negative trend. Namely, in the first two months of the third quarter of 2020, the industrial production declined by 9.3%, although the intensity of the decline is lower than in the previous quarter. This result is due to the partial recovery of the economy and the easing of restrictive measures, as well as the introduced fiscal-monetary measures by the Government and the Central Bank intended for economic recovery. However, the same did not contribute to a full return to normal industrial production. The analysis by individual industries shows a decline in almost all branches except the pharmaceutical facilities, chemical industry, ore production, and the production of computers, electronic and optical products. These industries have proved more resilient to shocks, primarily due to the nature of their sector, and, most importantly, due to the increased demand for their products due to the specific circumstances created by the pandemic, i.e. increased consumption of disinfectants and increased demand for electronic equipment and computers that are necessary due to changes in the way companies, public institutions and health (and education) sector work.

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

Graph 1: Industrial production, annual growth rate

Source: State Statistical Office


Data on trade developments continue the negative trend according to the initial data for the third quarter of 2020. As can be seen from Chart 2, we see a subsequent decline in trade volume over the entire period from 2020. Total trade decreased by 25.5% in the period July-August 2020, with the decline due to two of the three components, but mostly wholesale, identical to the second quarter of 2020. We only notice a positive trend in the trade of motor vehicles, which is partly due to a larger purchase order of vehicles for public transport in Skopje. Such data indicate that the recovery from the corona crisis will not occur in the short term as we expected at the beginning of the year, i.e. we expect that trade will have a high negative contribution to GDP decline.

Graph 2: Trade, annual growth rates

Source: State Statistical Office


The completed construction works in July 2020 registered a modest decline of 0.6% compared to July 2019. Such developments are more favorable than the data for the previous quarter when we saw a strong negative decline in this sector. Additionally, the capital expenditures in the Budget of the Republic of Macedonia registered a solid growth of about 60%. Taking these indicators into account, as well as the fact that the summer period is the most favorable for the completion of contracted construction works and capital investments, we expect construction to have a positive contribution to GDP growth in the third quarter of 2020.

Graph 3: Completed construction works, annual growth rates

Source: State Statistical Office


As can be seen from Chart 4, tourism in the period July-August 2020 registered lower negative growth rates, but still the situation is still alarming in this sector compared to the same period in 2019. Tourism in the third quarter of 2020 has big issues as a result of restrictive measures from the past period and bans on entry / exit of foreign tourists. Taking into account the data from July-August 2020, and the limited domestic offer of guests, the indications for this sector are with a strong negative growth rate despite the implemented assistance measures. With this in mind, we expect a strong negative contribution to GDP from the Tourism sector.

Graph 4: Tourism, annual growth rates

Source: State Statistical Office

Expenditure side:

Foreign trade:

Exports of goods in July and August of 2020 decreased by 4.3%, while imports of goods had a bigger drop of 6.5%. This is the third consecutive quarterly decline in trade indicators, albeit with lower intensity. The data are also in line with the indicators of our largest trading partners from the EU, where international trade indicators still have a negative growth rate. However, given that imports show a higher decline than exports, we expect the contribution of net exports to be moderately positive.

Graph 5: Foreign trade, growth rates

Source: State Statistical Office

Private consumption:

And in the third quarter of 2020, the banking sector is proving to be resistant to the biggest health and economic crisis that Macedonia (and the world) is experiencing in the last 30 years. According to the data from the National Bank, lending to the private sector in July and August 2020 continued to grow with a solid 6.9% on an annual basis. Deposits also showed solid growth, while non-performing loans did not change significantly. However, the great uncertainty from the health-economic crisis indicates the great restraint of the citizens for consumption and as a result we expect a moderate negative contribution of the private consumption to the GDP for the third quarter of 2020.

Graph 6: Loans to the private sector, growth rates

Source: National Bank of Republic of North Macedonia

Gross Investments:

The developments in the gross investments in the period July-August are relatively better compared to the other movements in the real sector. Long-term corporate loans increased by 13%, capital expenditures in the Macedonian budget increased by 60%, while imports of machinery and transport equipment dropped modestly by 1%. Such data indicate a positive contribution to gross investment in GDP.