Country Report Macedonia April 2009

Outlook for 2009-10

• The ruling Internal Macedonian Revolutionary Organisation-Democratic Party of Macedonian National Unity (VMRO-DPMNE) is in a strong position following its convincing victory in the presidential and local elections.
• The new president, Gjorge Ivanov, is expected to work closely with the prime minister, Nikola Gruevskiunlike the outgoing president, Branko Crvenkovski.
• Relations with Greece are set to come under greater strain, following Macedonia's appeal to the International Court of Justice (ICJ) over what is in effect Greece's veto on Macedonian NATO accession.
• There is an increased risk to macroeconomic stability, with the government planning a huge seven-year investment programme, following its adoption of a much-increased deficit target in the 2009 budget.
• The Economist Intelligence Unit has revised down its forecast for real GDP growth to -1.5% in 2009, in the light of weakening demand in Macedonia's main export markets. We expect a modest recovery, of 0.5%, in 2010.
• We forecast that the current-account deficit will narrow to an average of about 8% of GDP in 2009-10, from 14% of GDP in 2008, owing to reduced import demand and lower international oil prices.

Monthly review

• Mr Ivanov, the candidate of the VMRO-DPMNE, won the presidential race, well ahead of his rival from the opposition Social Democratic Alliance of Macedonia (SDSM), Ljubomir Frckovski.
• International observers have given a broadly positive assessment of the polls, an important precondition for Macedonia's continuing EU integration.
• The government has announced a seven-year infrastructure investment programme, worth 8bn (US$10.8bn), to mitigate the impact of the global economic downturn and stimulate Macedonia's long-term development.
• The government has introduced 28-day Treasury bills to help to finance the budget deficit, after a decline in year-on-year revenue in January-February2009.
• Year-on-year real GDP growth dropped sharply to 2.1% in the final quarter of 2008. Industrial output declined by an average of 14% year on year in January-February as demand fell in Macedonia's euro zone markets.
• Macedonia had a record current-account deficit of US$1.2bn, or 14% of GDP, in 2008, owing to a ballooning trade deficit and large-scale profit repatriation.

Source: Country Report