Economic Studies
North Macedonia

North Macedonia

Population 2.1 million
GDP per capita 6,100 US$
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major macro economic indicators


  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 0.2 2.7 3.1 -4.0
Inflation (yearly average, %) 1.3 1.4 1.5 1.8
Budget balance * (% GDP) -3.5 -1.7 -2.7 -3.4
Current account balance (% GDP) -1.0 -0.2 -0.7 -1.2
Public debt ** (% GDP) 47.8 48.5 51.0 52.0

(e): Estimate. (f): Forecast. *including public company in charge of national roads. **including public guarantees.


  • Association and Stabilisation Agreement with the EU, candidate for accession since 2003
  • Integrated into the European manufacturing production chain
  • Close to factories in Central Europe and at the meeting point of two European corridors
  • Wage competitiveness
  • Support from European donors
  • High levels of remittances from expatriate workers
  • Denar pegged to the euro


  • Low participation rate (47%), high structural unemployment and lack of productivity due to inadequate training
  • Large informal economy linked to inefficient government and cumbersome regulation
  • Sustained emigration to the EU by young people, who face 35% unemployment
  • High level of euroisation (40% of bank deposits and credit)
  • Inadequate transport, energy, health and education infrastructure
  • Polarised political landscape
  • Tensions between the Slavic majority and the Albanian minority


Growth still supported by domestic demand

Domestic demand will continue to support growth in 2020. Household consumption will again benefit from the strong employment market and wage growth, the latter attributable to regular increases in the minimum wage (30% of reported employees are paid at this level) and the small pool of skilled labour. Public investment will remain at a decent level with the continued development of the road network (with EBRD assistance), while private investment will be directed towards energy (the electricity market was liberalised in 2019) and tourism. The contribution of foreign trade to growth is expected to remain slightly negative. While imports will be supported by domestic demand, exports of goods produced by foreign factories (50% of the total, including automotive parts, chemicals and electrical cables and machines) and those produced by the domestic economy (iron, steel, clothing, bedding) will be restricted by weak European demand and capacity constraints. Credit to households and businesses should continue to grow strongly, thanks to a healthy banking system and low interest rates (key rate: 2.25% in November 2019). Activity will also be supported by a slightly accommodative fiscal policy with elections ahead.


Budgetary consolidation at a standstill and hampered by the informal sector

With elections to be held in April 2020 and new road investments under way, the public deficit is expected to widen, removing the prospect that debt, of which the service represents 12% of GDP, will stabilise. However, unless there is a growth shock or a sharp depreciation of the denar, debt is considered sustainable: 68% is held by foreign creditors, while 80% is denominated in euros, which, despite the euro peg, creates an exposure to currency risk. Fiscal consolidation is made difficult by tax evasion linked to the informal economy (estimated at between 30% and 40% of income and 18% of employment), owing to shortcomings in tax administration and labour inspections. Current expenditure on social assistance, wages and pensions leaves little room for public investment (4% of GDP). The management of public companies is not very transparent. Finally, foreign investors are granted costly breaks, including a tax exemption for ten years and free access to public services.

On the external accounts, the current account deficit is expected to increase in line with the trade deficit. The latter (equivalent to 15% of GDP in 2019) is due to the lack of manufacturing production (15% of value added), which is unable to meet domestic demand. Nevertheless, the services surplus (4% of GDP) and, above all, expatriate transfers and cash contributions (15%) exceed the trade deficit, which is accompanied by an investment income deficit (5%). The current account deficit is financed by foreign investment (4%). One-quarter of the external debt (76% of GDP as at June 2019) comes from commitments related to foreign investments, with the balance divided between public and private sectors. Net of receivables held abroad, it represents only 24% of GDP. Foreign exchange reserves, which stood at more than 4 months of imports at the end of August 2019, cover the short-term portion, which makes up 21% of the total.


EU membership is a long way off

At the European Council in October 2019, despite the endorsement of the European Commission and the European Parliament, representatives failed to reach the unanimity required to open negotiations for the accession of North Macedonia to the EU. It was agreed that the subject would be put back on the agenda before the EU-Western Balkans Summit in May 2020. Prime Minister Zoran Zaev had linked the opening of negotiations to the country’s name change. Also, only 2.5 years after taking power in May 2017, following two years of political crisis, he called for parliamentary elections in April 2020, eight months ahead of schedule. His government gave way in early January to an interim government composed of technocrats and representatives of the various parties. It is unclear how the battle will play out between the outgoing coalition composed of the Social Democratic Alliance of Macedonia (SDSM) and the parties representing the Albanian minority, the DUI, AA and DPA, and the opposition, represented by the VMRO-DPMNE party. The agreement with Greece on the country’s name change does not have unanimous support within the nation. However, institutional progress should prevent a return to the mistakes of 2014/2017. In terms of the business environment (scores of 57/100 and 80.7/100 respectively in the Global Competitiveness Report and Doing Business), while within the (duty free) Industrial and Technological Development Zones, foreign companies enjoy considerable tax breaks and low labour costs, they also have to cope with a lack of skilled labour, inadequate infrastructure, weak research and development, issues relating to judicial independence, as well as corruption and organized crime.



Last update : May 2020