Country Report Macedonia July 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 victories in the presidential and local elections, held in April.
• The new president, Gjorge Ivanov, is expected to work closely with the prime minister, Nikola Gruevski-unlike his predecessor, Branko Crvenkovski.
• Mr Crvenkovski faces an uphill task in rebuilding the main opposition party, the Social Democratic Alliance of Macedonia (SDSM).
• Macedonian relations with Greece will come under further strain as the two countries argue before the International Court of Justice (ICJ) over Macedonia's claim that Greece is preventing it from joining NATO.
• There is an increased risk to macroeconomic stability, given weakening tax receipts and the government's ambitious capital investment programme.
• The Economist Intelligence Unit forecasts that real GDP will contract by 3% in 2009, reflecting the recession in Macedonia's main export markets and falling domestic demand. We expect a modest rebound, to growth of 0.5%, in 2010.
• We forecast a contraction of the current-account deficit, from the equivalent of an estimated 13.4% of GDP in 2008 to an average of around 7% of GDP in 2009-10, as a result of slowing import demand and lower oil prices.

Monthly review

• Mr Crvenkovski has started to consolidate his hold on the SDSM, with many of his closest associates elected to its leading bodies at a congress in June.
• The European Commission has proposed that citizens of Macedonia should be able to travel without visas to the Schengen area countries from 2010.
• The World Bank has provided a US$25m loan to Macedonia to strengthen the country's social safety net during the recession expected in 2009.
• The government has auctioned, for the first time, Treasury bills with a foreign-exchange clause as a hedge against currency risk.
• Real GDP contracted by 0.9% year on year in the first quarter of 2009, marking the first case of negative growth in seven years. Industry, banking, transport and tourism all contracted because of the global economic downturn.
• Merchandise exports in January-April shrank by 43.2% year on year in US dollar terms and imports declined by 28.8%.
• The first-quarter current account-deficit ballooned by 73% year on year, to US$445m, as the fall in imports was outpaced by the drop in exports, and current transfers fell to their lowest level in four years.

This report covers the following industry codes:
SIC Code: 49;60;53;37;2834;80;13
NAICS Code: 22;52;44;336;3254;62;211