MKMacedonia2025 forecast – The decline in GDP in Q4 2020 will be between 2.0% и 4.0%
According to the latest high-frequency indicators and available data so far, we forecast a reduction in Gross Domestic Product from 2.0% to 4.0%, as a result of the prolonged effects of the closing of the economy and the reduction of aggregate supply and demand domestically and globally.
The projection is due to the following economic trends in the fourth quarter of 2020:
Production side:
Industrial production: Negative trends in industrial production continue in the last months of 2020. This is the fifth consecutive quarterly decline of industrial production. Namely, in the first two months of the fourth quarter of 2020, industrial production dropped by 4.6%, which is significantly lower compared to the past two quarters. This result is expected given the still existing negative dynamics in local and global markets due to the slow recovery of world economies from the consequences of the crisis caused by the Covid-19 virus. Analyzed data by individual industries for Q4 2020 show a decline in almost all industries except energy facilities, pharmaceutical companies, chemical industry, ore production, and the production of computers, electronic and optical products. Industries that produce low value-added products, namely the leather, wood processing, and textile industries, and producers of intermediate products and raw materials for the industry are most affected by the effects of the slowdown in economic cycles in the past period.
Industrial production data indicate that industry will make a negative contribution to GDP growth in the fourth quarter of 2020.
Graph 1: Industrial production, annual growth rate
Source: State Statistical Office
Trade: The data on trade developments continue the negative trend according to the initial data for the fourth quarter of 2020. As can be seen from Chart 2, we see a consequent decline in the volume of trade over the entire period of 2020, including the last months of the year. Total trade decreased by 21.7% in the period October-November 2020, with the decline again due to two of the three components, but mostly wholesale, identical to the second and third quarters of 2020. Such trade data indicate that this sector will have a high negative contribution to GDP decline
Graph 2: Trade, annual growth rates
Source: State Statistical Office
Construction: The performed construction works in October 2020 registered a nominal growth of 10% compared to October 2019. Such movements are more favorable than the data for the second quarter when we saw a strong negative decline and additionally more favorable than the data for the third quarter when the recovery of parameters in this sector began. In the period October-November, the capital expenditures in the Budget of the Republic of Macedonia decreased by about 14%, however, the unofficial information indicates a high growth of the capital expenditures in December 2020. Taking into account all parameters, we expect construction to have a positive contribution to GDP growth in the fourth quarter of 2020.
Graph 3: Completed construction works, annual growth rates
Source: State Statistical Office
Tourism: As can be seen from Chart 4, tourism in the period October-November 2020 registered a deterioration of the parameters, i.e. higher negative growth rates than the previous quarter. This is expected after the end of the summer tourist season and the new, third wave of the spread of the Covid-19 virus. Tourism in the first two months of the fourth quarter of 2020 also suffered damage as a result of restrictive measures to limit movement (closure of several Western European countries), travel restrictions, and measures imposed by the government to halve working hours and accommodation in order to limit the spread of Covid-19 virus. Given these data, the results of this sector will have a strong negative contribution to GDP growth.
Graph 4: Tourism, annual growth rates
Source: State Statistical Office
Expenditure side:
Foreign trade: Exports of goods in October and November of 2020 increased by 3.8% compared to the same period last year, while imports of goods decreased by 2.9% compared to the same period last year. This is the first preliminary quarterly growth of exports after three consecutive quarters of negative growth, which indicates a partial recovery and restart of industrial facilities that have the largest contribution to the country’s exports. The data also correspond to the indicators of our largest trading partners from the EU and the Western Balkans where the import/export rates in relation to Macedonia correspond to those shown in Chart 5. Given the growth of exports compared to the still negative growth of imports, we expect the contribution of net exports to be positive for Q4 2020.
Graph 5: Foreign trade, growth rates
Source: State Statistical Office
Personal consumption:
Graph 6 shows the changes in the fourth quarter of 2020. The banking sector again recorded a positive increase in lending to the private sector. According to the data of the National Bank, lending to the private sector in October and November from 2020 continued to grow at a rate of 5.4% on annual basis. This is the only parameter that is the subject of this analysis that constantly records positive movements throughout the duration of the Covid pandemic. Deposits also showed solid growth, while non-performing loans registered a larger downward change due to the decision of the NBRM to revoke the operating license of Eurostandard Bank, which owned a large portfolio of non-performing loans. However, the great uncertainty from the health-economic crisis and systematically considering the other parameters of this analysis indicates to the conclusion that there will be great restraint of citizens for consumption and moderate negative contribution of personal consumption to GDP for the fourth quarter of 2020.
Graph 6: Loans to the private sector, growth rates
Source: State Statistical Office
Gross investments: The developments in the gross investments in the period October-November are relatively better compared to the other developments in the real sector. Long-term loans to enterprises increased by 9.2%, and growth of capital expenditures in the state budget is expected. At the same time, the import of machinery and transport equipment did not change significantly. Such data indicate a moderately positive contribution to gross investment in GDP.