The projected path of the Macedonian economy growth will mean to reach and overcome the pre-crisis level during the next year. Inflation remains moderate - current price pressures globally are temporary, with stabilization over the next year being expected

Skopje, 9 November 2021 

The National Bank Council held a regular session where it discussed and adopted the latest Quarterly Report, which includes the most recent macroeconomic forecasts of the National Bank. After the adoption of the Report, the Governor presented the macroeconomic forecast at the conferences for the media.

For the second year in a row, macroeconomic forecasts are conducted and released in conditions imposed by the pandemic and existing global uncertainty. In such circumstances, the National Bank continuously pursues a relaxed monetary policy, in order to mitigate the pandemic effects on the domestic economy. In the period between the April forecasts and this cycle, the economic parameters were generally in line with the expectations. Risks remained associated with uncertain health conditions with more pronounced supply chain disruptions and volatility in primary commodity markets.

The latest expectations for economic growth remained the same as in the April forecasts, with still being expecting to return fully to the pre-crisis level the next year. In accordance with the included assumptions for the external environment and domestic factors, this and the next year the economic activity will grow with an identical growth rate of 3.9% and will gradually reach a rate of 4% in the medium term. Throughout the forecast period, growth is still expected to be driven by domestic demand, while net exports will have a negative contribution to the growth in the forecast period. Namely, the recovery of foreign demand is expected to have a stimulating effect on export activity, but given the high import component of the exports, as well as the faster recovery of domestic demand, larger import pressures are expected.

Inflation remains under control. The latest projections indicate a moderate inflation of 3.1% in 2021. Most of the current upward pressures are due to factors on the supply side, related to the prices of primary commodities on world stock exchanges, with the transmitted effect of last year's increase in prices of a regulatory nature, as well as certain factors specific to the pandemic crisis in conditions of relaxation of restrictive measures. These factors are expected to normalize this year, while the inflation to decelerate to 2.4% and to gradually reduce to about 2% in the medium run. At the same time, no significant transmission effects from the current price growth are expected, given the estimates for moderate recovery of demand. Under the influence of the prolonged duration of the pandemic, in the international markets there is still great volatility in the prices of primary commodities, and thus uncertainty about the movement of import prices, both in the short and long term.

The current account deficit is still expected to remain moderate, although at a slightly higher level than last year (3.8% of GDP), and in the medium term would be around 2% of GDP, similar to the pre-crisis level. The widening deficit is primarily a reflection of the higher trade deficit in rising world food and energy prices, a temporary slowdown in supply chains that slows exports, and a gradual recovery in domestic demand. These effects are largely neutralized by faster recovery of private transfers as well as better net exports of services. The current account deficit, as in the pre-crisis period, will continue to be fully financed by the inflows in the financial account, which will enable further growth of foreign reserves in the medium term.

Foreign reserves adequacy ratios show that they were in the safe zone throughout the forecast horizon, which additionally indicates stability of the domestic currency - the denar.

Credit activity of the banking system is still considered a great supporter of economic growth. During the forecast period, solid credit growth is expected, which this year will be 7.1% and will gradually accelerate to around 8% in the medium term. The expectations for the movement of deposits in the forecast period are similar, as the main source of financing for banks.

In general, the latest estimates for the four-year period 2021-2024 confirm the expectations for recovery of the domestic economy from the pandemic and are basically unchanged from the April forecasts. The estimates are accompanied by high uncertainty, where the risks are mostly downward and are primarily related to the further development of the pandemic and disruptions in the global supply and production chains. The National Bank continues to carefully monitor the developments and risks in the domestic and external environment, in order to adequately adjust the monetary policy setup.