Skopje, 23 November 2022

The National Bank Council held a regular session where it discussed and adopted the latest Quarterly Report, which includes the macroeconomic forecasts of the National Bank. After the adoption of the Report, the Governor presented the macroeconomic forecasts to the public at the press conference. 

The external environment for the domestic economy is less favorable, compared to the period of preparation of the spring forecasts. The further geopolitical tensions arising from the military invasion of Russia over Ukraine, as well as the COVID-19 pandemic that still lasts, deteriorate the global environment, adversely affect the economic outlook and create further pressures on the prices of primary products in the world markets and the world inflation. All this led to a slower post-pandemic recovery and deepening of the energy crisis that reflects on consumer prices. The stronger tightening of the global financing conditions will also be a factor that will limit the growth, bearing in mind the intensified and longer-term growth of inflation worldwide.

Taking into consideration such environment, the prospects for the growth of the domestic economy have been corrected downwards. In conditions of extremely great volatility of the assumptions and high uncertainty, two scenarios are prepared. According to the baseline scenario, the growth rates equal 2.3% and 2.6% for 2022 and 2023, respectively, supported by the domestic factors related to the announced infrastructure investments and the investments for expanding the capacities in part of the export sector. If this support is weaker than expected, having in mind the less favorable external environment, in the second scenario the economic outlook will be 2% and 1.8% for this and for the next year. In the medium run, it is envisaged an increase in the GDP growth to 3.6% in 2024 and to 4% in 2025. The risks around the forecasted path of growth are downward and will mainly depend on the external environment.

Inflation in the October forecasts has been revised upwards, in conditions of predominantly upward adjustments of the estimates for import prices. For 2022, average annual inflation of 14.3% is envisaged. For the next year, a decrease in import prices is expected (according to the forecasts of the international financial institutions), which would also reduce the pressures on domestic inflation. Amid such expectations, as well as estimates for absence of major pressures from demand, for 2023 it is expected that the average inflation rate will be more moderate and will equal 8 - 9%, depending on the increase in electricity prices on the regulated market. It is expected that the inflation movement would also be affected by the measures for subsidizing the price of electricity for the food industry by the government, as well as by the gradual tightening of the monetary policy. For 2024, it is expected that inflation will significantly slow down, reducing to 2.4% and will return to the historical average of 2% in 2025.

The deteriorated terms of trade, and especially the growth of the prices of energy widened the current account deficit. Compared to the previous forecasts, this segment registered no major changes. According to recent estimates, for 2022 it is expected that the current account deficit will equal 7.4% of GDP, compared to 3.1% in 2021.  The deterioration is solely a reflection of the significant widening of the energy deficit, while all other components are expected to register shifts in a positive direction, especially the private transfers which increased by about 30% in the first half of the year. Amid assessments for a less favorable external environment in 2023, but also a more moderate price pressure, it is envisaged that the current account deficit will decrease to 5.6% of GDP, mainly due to the narrowing of the negative balance in the trade in goods and services. For the period 2024 - 2025, a low current account deficit of 1.7% of GDP is expected, similar to the pre-pandemic average. As before, the current deficit would be financed by the inflows through direct investments and government borrowing, whereby the foreign reserves throughout the entire period of the forecasts are maintained at the appropriate level, as a guarantee for the stability of the exchange rate of the domestic currency.

The latest credit market forecasts point to a moderate slowdown in the growth of credit activity until the end of 2022, which will continue also in 2023. The growth of loans in 2022 would be 9.2% on an annual basis, while in 2023 it would be 7.1%. In the period ahead, stabilization of the lending activity is expected, at an average growth rate of 7.5% in the period 2024 - 2025, in circumstances of growth in the domestic economy, stabilization of the expectations and increased demand for loans by households and the corporate sector. Despite the war in Ukraine, the measures taken by the National Bank enabled further growth of deposits at a similar pace, so that according to the current forecasts it is expected that at the end of 2022 it will amount to 3.9%. The stabilization of the flows and the effect of the National Bank measures for encouraging denar savings, are expected to result in deposit growth of 6.5% in 2023 and 8%, on average, for the period 2024 - 2025.

Overall, the latest assessments for the growth of the Macedonian economy are less favorable relative to the April forecasting round for this and for next year, influenced by the war in Ukraine that continues, thus deepening the energy crisis, which in turn has a stronger effect on the prospects for growth and inflation. The assessments are accompanied by high uncertainty, and the risks are significantly downward and are associated with the geopolitical developments that adversely affect both prices and economic activity globally. The National Bank closely monitors macroeconomic data and risks and, as before, will undertake all necessary measures, by using all available instruments, in order to maintain the stability of the exchange rate and the medium-term price stability.