Country Report Macedonia November 2009

Outlook for 2010-11

• The ruling Internal Macedonian Revolutionary Organisation-Democratic Party of Macedonian National Unity (VMRO-DPMNE) is in a strong position following victories in presidential and local elections held in March and April.
• Macedonian relations with Greece will remain in a state of flux, although the change of government in Greece in October may improve the chances of a settlement of the two countries' dispute over Macedonia's name.
• The prime minister, Nikola Gruevski, will come under increasing pressure to resolve the dispute with Greece—and thus remove the last obstacle blocking the opening of EU accession talks.
• The risk to macroeconomic stability is set to ease, following a decline in the current-account deficit and the trimming of government expenditure, although tax receipts will remain weak.
• The Economist Intelligence Unit forecasts that economic growth will return in 2010, after a contraction in real GDP of an estimated 2.2% in 2009. We expect growth of 1% in 2010, accelerating in 2011 to 3%, as external demand recovers.
• We expect the current-account deficit to shrink from the equivalent of an estimated 9.7% of GDP in 2009 to an average of 7.7% of GDP in 2010-11, as exports pick up and tighter fiscal policies limit import demand growth.

Monthly review

• The European Commission has recommended that the EU should begin accession talks with Macedonia.
• Macedonia and Kosovo established diplomatic relations on October 17th, after both countries ratified an agreement demarcating their border.
• The Commission's annual progress report on Macedonia has concluded that the country will be able to cope with the competitive pressure arising from its future EU membership.
• The IMF has praised Macedonia's monetary policy and banking supervision, but called for a reduction in fiscal deficits in the medium term.
• Industrial output in September declined by 9.8% year on year—the 12th month in a row in which it has fallen—as external and domestic demand remained subdued.
• Unemployment in the second quarter reached a record low of 31.9% of the workforce, despite the recession, with real GDP shrinking by 1.4%.
• The monthly current-account balance in July, at US$42m, was in surplus for the first time in two years, owing to greatly increased current transfers.

This report covers the following industry codes:
SIC Code: 1;49;39;37
NAICS Code: 11;22;31;336