Country Report Macedonia May 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 victories in the presidential and local elections.
• The new president, Gjorge Ivanov, is expected to work closely with the prime minister, Nikola Gruevskiunlike his predecessor, Branko Crvenkovski.
• MrCrvenkovski is set to return to the helm of the opposition Social Democratic Alliance of Macedonia (SDSM).
• Macedonia's relations with Greece will come under greater strain as the two countries argue before the International Court of Justice (ICJ) over Macedonia's complaint that Greece is preventing it from joining NATO.
• There is an increased risk to macroeconomic stability as weakening tax receipts render the government's capital investment programme unrealistic.
• The Economist Intelligence Unit has revised down its forecast for real GDP, and now expects a contraction of 3% in 2009, reflecting the deepening recession in Macedonia's main export markets. We expect a modest rebound, of 0.5% growth, in 2010.
• We forecast a decline in the current-account deficit, from the equivalent of an estimated 13.9% of GDP in 2008 to an average of 6.7% in 2009-10, as a result of slowing import demand and lower oil prices.

Monthly review

• The VMRO-DPMNE's candidate, MrIvanov, won the presidential contest, and the party has secured two-thirds of the mayoral posts in local elections.
• A low turnout in the presidential run-off demonstrated widespread apathy among ethnic Albanians.
• The government has adopted a third anti-crisis package, comprising about 70measures, with an emphasis on boosting credit for businesses.
• The government revised the 2009 budget in April, slashing revenue by 9%, following a sharp underperformance in tax receipts.
• Industrial output declined by 4.8% year on year in March, as demand for Macedonia's metal and textile exports continued to drop.
• The trade deficit in January-February amounted to US$400m, 10% more than the deficit of a year earlier, even though trade dropped by 35.4% year on year in US dollar terms, demonstrating Macedonia's high import dependence.