16 May 2022

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 press briefing. 

The Russian invasion of Ukraine and sanctions against Russia have worsened the already deteriorated global supply chains, energy crisis and primary commodities markets, causing price pressures and great uncertainty for the global economic prospects.  The pandemic remains a significant factor for both economic and inflation outlook.  Given the protracted price pressures due to the long-term and intensive growth of import prices, which accelerates the inflation, certain transmission effects occur in several price categories, thus changing the inflation expectations, so after the amendment to the reserve requirement, the National Bank increased the policy rate twice, by 0.25 percentage points, Thus, it still uses the monetary instruments for optimal liquidity management.

The current perceptions for growth of the Macedonian economy are less favorable compared to the October estimates. Namely, slower growth of the Macedonian economy is expected for this and the next year, compared to 2021.  Economic growth of 2.9% is expected in 2022, followed by a growth of 3.6% in 2023.  Positive, yet more moderate contribution from the domestic demand is still expected, mainly due to the smaller contribution from household consumption, while the net exports will make a negative contribution.  In the medium term, solid economic growth is expected, with a real rate of 4% in 2024 (in line with the October assessments).

The latest forecasts point to an average inflation of 8.8% in 2022, amid expectations for a gradual stabilization by the end of the year.   The uncertainty in terms of the future price developments is extremely high, but the forecasts of the international financial institutions estimated a gradual stabilization of the pressure by the end of the year, thus expecting a significant slowdown in price growth already the next year. Consequently, for 2023, the inflation rate is expected to slow down and reduce to 3%. In the medium term, the inflation is expected to average 2%, in line with the October expectations. 

In conditions of escalated geopolitical tensions, new disruptions of supply chains and further growth of the prices of primary commodities on the world stock market, the assessments for the external position of the economy within this cycle of forecasts are unfavorable.  The medium-term forecast of the balance of payments points to higher current account deficit for the period 2022 - 2024, mainly due to increasing prices of all primary commodities, especially the prices of energy.  Within the latest forecasts, the current account deficit of the balance of payments is expected to increase in 2022 to 8% of GDP. The main factor for these developments in the current account are the movements in the trade of goods and services, deterioration in the trade deficit in particular, with a moderate contribution of reduced deficit in services.  Given the expectations for normalization of the situation in the global and domestic economy in 2023, the current account deficit is forecast to narrow to 4.5% of GDP, according to the projected narrowing of the negative balance in trade in goods and services.  For 2024, the deficit in the current account is expected to further reduce to 2.3% of GDP, at the similar level as in the pre-pandemic period.  Foreign reserves adequacy ratios show that they remained in the safe zone over the forecast horizon.

In the first quarter of the year, banks’ lending activity had an important role in supporting the economy, amid further accommodative nature of the monetary policy and stable banking system.  Despite the accelerated credit growth in the first quarter of 2022, the expectations for 2022 show its continuation by the end of the year, but at a slower pace, amid pronounced uncertainty, slower economic growth and more moderate growth of the deposit base.  Moreover, the credit growth for the entire 2022 would amount to 7.7%. Solid credit support is expected in the medium term, so for the period 2023 - 2024 it would equal 7.6%, on average (unchanged compared with the October forecast).  More moderate growth of deposits is expected for the entire period of forecasts. Thus, the growth of deposits will amount to 5.9% for 2022, while its moderate acceleration is expected in the next period, which would average 7.5%, in the period 2023-2024. 

In general, the latest estimates for the growth of the Macedonian economy are less favorable compared to the October forecasting round for this and the next year, under the influence of the war in Ukraine and energy crisis.  The estimates are surrounded by high uncertainty, with downward risks.  Main downward risks at the moment are further escalation of the war between Ukraine and Russia, the introduction of new tougher sanctions and possible further deterioration of the economic relations between the West and Russia.  Also, an additional risk factor is the possible stronger tightening of the monetary policy in the developed countries, in response to the increased inflationary pressures and inflation expectations.  At the same time, there risks related to the further course of the pandemic remain, as well as the possibility of the emergence of new, worrying variants of the coronavirus.  The National Bank is constantly monitoring developments, as well as the potential risks from both the external environment and domestic factors to the domestic economy, in order to response adequately by adjusting policies and taking other, additional measures, if necessary.