Quarterly Economic Monitor Q3 – 2019

Analysis and publications

Macedonia 2025 forecast: GDP growth in Q3 2019 will be between 2.5% and 4.5%

According to the latest high frequency indicators and available data, moderate acceleration of economic growth is expected in Q3 2019, compared to the previous quarter.

The projection is due to the following economic developments in Q3 2019:

Production side:

Industry: Industrial production registered a solid growth of 7.8% in the period between July and August 2019, which represents a strong positive impulse for GDP growth in Q3 2019. As can be seen in Graph 1, the growth is significantly higher compared to the growth of the previous quarter. This indicates that the deceleration of the German economy is not yet observed in the data on industrial production in the Republic of Macedonia, despite the fact that Germany is the main trading partner with a share of 48% in the total Macedonian exports (in Q2 2019). Furthermore, the EU quotas set for the Metal Industry do not have any significant impact in the analyzed period. However, industrial production risks are noticeable, especially given that most of this growth comes from the gas and water energy sector, while many other sectors are declining. In addition, industry turnover in August declined.

The industry will have a positive contribution to GDP growth in the third quarter of 2019.

Trade: As can be seen in Graph 2, the trade continued with high growth rates in the third quarter of 2019, supported by the increase in the number of employees as well as the increase in the average paid salary in the Republic of Macedonia. Such movements were largely due to the growth of wholesale trade, while retail and motor vehicle sales recorded lower growth rates. Trends in trade will have a strong positive contribution to GDP growth.

Construction: Construction completed in July 2019 experienced solid growth of 10%. Taking into account the low comparison base from the same quarter of the previous 2018 (construction in 2018 recorded negative growth rates) we expect a positive contribution of construction to GDP growth.

 Tourism in the Republic of Macedonia has a continuous decline in the number of tourists and overnight stays. The growth rates are close to zero in July-August, suggesting that tourism’s contribution to GDP growth may be insignificant in Q3 2019.

Expenditure side:

Expenditure side:

Net exports: Exports and imports of goods in July-August experienced high growth rates. Thus, export of goods increased by 14.1%, while import increased by 13.9% (Graph 5). Given the higher base of imports, net exports are expected to have a negative contribution to GDP growth in Q3 2019.

Private consumption: Private sector lending in July and August continued to grow, but at a slower pace. Thus, the growth in the analyzed period registered growth of 6.7%, which is a slowdown of 2.2 percentage points compared to Q2 of 2019. The increase in the average wage in July by 4.3% and the increase in the gross income based on VAT of 5% in July and August, indicate a positive contribution of private consumption to GDP growth.

Gross investments: We expect a positive contribution to the gross investments to GDP, mainly due to the low base of last year. In addition, there is a high growth in the import of machinery and equipment, as well as growth in the completed construction works. Downward risk is the low level of capital investments realized in the budget of the Republic of Macedonia.