For 2023, economic growth of 2.1% is forecasted, and average inflation ranging from 8 to 9%

Skopje, 16 May 2023  

The National Bank Council held a regular session where it discussed and adopted the latest Quarterly Report, which includes the spring 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.

According to the latest forecasts, the macroeconomic landscape has not changed significantly compared to the previous assessments. It is still expected growth stabilization and moderate acceleration the medium run, as well as gradual slowdown in inflation, amid assessments for exhaustion of the external shocks and more tightened financial conditions. In the external sector, the pressures on the current account deficit are smaller, due to the lower prices of primary products at the moment, but also the expectations of the international financial institutions for their further reduction for the coming period. Foreign reserves in both the short and the medium term are in the safe zone. Risks around forecasts still exist, and are mainly associated with the external environment.

Regarding the economic growth, amid insignificant changes in the assumptions for the domestic and external environment and taking into account the latest available information about the announced infrastructure projects, the forecasted economic growth for 2023 amounts to 2.1%, which is less compared to the baseline scenario, but in the middle of the interval of both scenarios from the October forecast. For 2024 and 2025, the GDP forecasts are unchanged, i.e. the growth is expected to accelerate, whereby it would be 3.6% and 4%, respectively, in accordance with the recovery of the global economic activity, and especially the activity of our major trading partners. Regarding the growth structure, in the period 2023 - 2024, it is expected that the growth also in the current forecasts will result from domestic demand, while net exports will make a small negative contribution.

In terms of the future path of prices in the domestic economy, the latest forecasts point to unchanged expectations for the inflation movement, i.e. they confirm the October perceptions for its slowdown and reduction to a one-digit level, ranging from 8 to 9% in 2023. The energy component would significantly slow down inflation in 2023, due to the assumptions for reduction of energy prices, and gradual mitigation of the price pressures on food is expected. In the medium run, it is expected that the inflation rate will continue to slow down and will reduce below 3%, close to the historical average. Risks to the inflation forecast in the medium run are still associated with the uncertainty in terms of the future movements of the world energy and food prices and the intensity of transmission on domestic inflation. Also, the wage growth, and especially the ratio with the productivity growth should be carefully monitored.

The stronger downward correction of the expectations for the stock exchange prices of energy and food changed the forecasts, specifically, it is now expected significantly lower current account deficit in 2023, compared to the October forecast, i.e. deficit narrowing to 3.6% of GDP in 2023. In the next period, prices are expected to stabilize, which together with the expectations for better global economy and the recovery of the most important trading partners would contribute to a further narrowing of the current account deficit to 3.2% of GDP in 2024 and 2.7% of GDP in 2025. The financial net inflows in the period 2023 - 2025 would fully finance the current account deficit and will further increase the foreign reserves. Most of the financing would be achieved through foreign direct investments, as well as long-term government borrowing. Throughout the entire period of the forecast it is expected that the foreign reserves will be maintained at a level appropriate to the international standards for maintaining the stability of the exchange rate.

The latest estimates for the lending activity of the banking sector indicate a more moderate growth relative to the October forecasts. At the end of 2023, the credit growth would slow down, reducing to 5.7% on an annual basis, whereby a certain contribution to such movements was also made by the adopted monetary and macro-prudential measures. With the gradual acceleration in the economic growth and the stabilization of the expectations, growth and lending activity are expected to accelerate in the next period, whereby the credit growth for the period 2024 - 2025 would equal 6.6% on average. In terms of the sources of financing, it is expected that the credit growth, as before, will be supported by the deposit growth, which would amount to 6.9% in 2023 and 7.7% in the period from 2024 to 2025, on average.

The National Bank closely monitors macroeconomic data and risks and, as before, will undertake all necessary measures by using all available instruments for maintenance of the stability of the exchange rate and for stabilization of inflation in the medium run.