Quarterly Economic Monitor – Projections Q4 – 2019

Analysis and publications

Macedonia2025 projects: GDP Growth between 1,0% and 3,0% in Q4 2019 

Based on the available early warning indicators and high frequency data, we expect moderate slowdown in economic growth in the fourth quarter of 2019.

The projection is due to the following economic developments in the fourth quarter of 2019:

Production side:

Industry:  Industrial production recorded a negative growth rate of 1.3% in the fourth quarter of 2019, which represents a negative impulse for GDP growth in the analyzed period. The negative growth rate indicates that the deceleration of the German economy is already observed in the data on industrial production in the Republic of Macedonia. A more detailed analysis indicates that besides the automobile industry, the food and mining industries also recorded negative growth rates. Industrial production risks are still present given the moderate slowdown in the global economy, and in particular the slowdown in our largest trading partner – Germany. Adverse effects are also expected from the economic downturn in China caused by the Covid-19 virus epidemic.

Industrial production data show that industry will have a moderate negative contribution to GDP growth in the fourth quarter of 2019.

Trade: As illustrated in Graph 2, trade continues to record high growth rates in the fourth quarter of 2019, supported by the employment growth, as well as the increase in the average wage. These developments are in line with budget data, which show higher inflows from VAT collection. Higher VAT collection is mainly due to the growth of wholesale trade, while retail trade and motor vehicle sales recorded lower growth rates.

Trends in trade will have a strong positive contribution to GDP growth.

Construction: Construction work decreased by 1% in the period October-November 2019. Despite the Government’s commitment, the low level of capital investment realized in the budget has affected construction as well – an activity that is most severely affected by a lack of work force. Hence, a neutral contribution of construction to GDP growth can be expected for the Q4-2019.

Tourism: As evidenced by Graph 4, tourism in the fourth quarter of 2019 recorded a high growth rate. The number of tourists has seen growth of 15%, while the growth of stays per night has significantly increased by 8%. Such developments, coupled with the growth of catering turnover, suggest that tourism’s contribution to GDP growth may be positive in the fourth quarter of 2019.

Foreign Trade: Export of goods in the fourth quarter of 2019 increased by 0.5%, while import of goods registered a relatively high growth rate of 7.3%. The movements in the quantities are similar. Given these trends, net exports are expected to have a negative contribution to GDP growth in the fourth quarter of 2019.

Private consumption: Private sector lending in the fourth quarter of 2019 continued to grow but at a slower pace. Thus, the growth in the analyzed period was 6%, which is a slowdown, compared to the first half of 2019. The increase in average wages as well as the increase in gross income based on VAT indicates a positive contribution of private consumption to GDP growth.

Gross investment: Gross investment growth is expected to slow in the fourth quarter of 2019. The high growth in import of machinery and equipment, which was characteristic of the previous quarters, is already declining, while construction work is also decreasing. Тhe low level of capital investments realized in the central budget is a downward risk.