Country Report Macedonia July 2008

Outlook for 2008-09

• Following the election in June, the Internal Macedonian Revolutionary Organisation-Democratic Party of Macedonian National Unity (VMRO-DPMNE) has won a majority of seats in the new parliament.
• The violence and corruption that tarnished the election, and the worsening of relations between the two main ethnic Albanian parties, are signs that the next government will face a struggle to maintain stability.
• The Economist Intelligence Unit expects the prime minister, Nikola Gruevski, to come under strong external pressure to bring the Democratic Union for Integration (DUI), the largest ethnic Albanian party, into a ruling coalition.
• We forecast annual average real GDP growth of around 5% in 2008-09, with regulatory and institutional constraints preventing higher growth.
• We expect a current-account deficit of around 8.5% of GDP in 2008. High international oil prices will keep import costs up during the forecast period, as oil is Macedonia's single largest import category.

Monthly review

• Two reruns of polls were necessary in some electoral districts, after evidence of irregularities was found. The DUI remains the main ethnic Albanian party.
• The final election results are a significant success for the VMRO-DPMNE, whose coalition captured 63 out of 120 parliamentary seats, and a significant defeat for the opposition Social Democratic Alliance of Macedonia (SDSM).
• The Irish rejection of the EU's Lisbon treaty raises doubts over the EU's ability to admit new members, and the Greek authorities are threatening to require resolution of the name dispute before opening EU accession negotiations.
• The World Bank has called for a further deepening of Macedonia's international trade and investment links in order to encourage higher economic growth.
• The government has adopted several measures designed to alleviate the impact of higher international oil prices, including subsidies for farmers.
• The State Statistical Office (SSO) reported that real GDP growth was 5.2% year on year in the first quarter of 2008.
• Consumer price inflation slowed modestly to 9.5% year on year in May, having been above 10% in both March and April.
• In January-March the current-account deficit was US$277m. The deterioration was expected in light of previously released foreign trade data.