Includes 3 FREE quarterly updates
Core Views
Macedonia's recent political deadlock still threatens to undermine the country's policy-making process and could become a significant setback to Skopje's EU accession hopes. Although we believe that Brussels will remain committed to further integration of the Balkan country, with the EU in a bid to prevent major political instability, we believe that some permanent damage has been done and have accordingly downgraded our political risk ratings for the country.
Macedonia's economy will undergo a moderate recovery over the next few years following a disappointing 2012. However, scope for robust growth over the coming years is firmly limited by anaemic growth in the eurozone and obstacles to Macedonia's further integration with the EU.
We expect Macedonia's central government budget deficit to begin narrowing this year as economic activity picks up gradually and government spending is capped by a divided legislature. We caution, however, that demand for early elections and a tendency to overestimate revenues in the annual budget present risks to this view.
Major Forecast Changes We have lowered our 2014 real GDP growth forecast for Macedonia to 2.8% from 3.4% previously, and see lower growth in 2015 at 2.9% from our previous projection of 4.7% growth.
We have revised up our current account deficit forecast for Macedonia from 3.3% of GDP to 4.3% in 2013, but see the shortfall peaking at 4.8% of GDP in 2014, down from our previous expectations for a 5.6% of GDP deficit next year.
Key Risks To Outlook
Fiscal austerity across Europe threatens to permanently starve Macedonia's economy of external demand, which would lead to a sharp decline in fixed investment levels and decimating any remaining competitiveness of the export sector. With little to provide a boost to domestic demand, we may be overestimating the ability for the Macedonian economy to bounce back following a disappointing 2012.
The government has shown a tendency to overestimate revenues in its budgets, which could lead to a more expansionary fiscal policy than current economic conditions would warrant. Although this could see the deficit widen sharply, we note that expenditures have traditionally been adjusted to account for the lower-than-expected revenues in previous years.
Macedonia's net international investment position (NIIP) is increasingly becoming a concern, especially with the country's current account gap set to widen over the next two years. The NIIP has been largely driven by foreign direct investment, which signifies a longer-term commitment to the Macedonian economy, and should stave off a sudden outflow of foreign capital. However, measuring some 55% of GDP, Macedonia's NIIP has been increasingly driven by net other investments. Should foreign reserves begin to decline, in the event that the capital and financial account coverage of the current account deficit starts to erode, Macedonia's NIIP could escalate rapidly and prompt a painful adjustment further down the line.
Core Views
Macedonia's recent political deadlock still threatens to undermine the country's policy-making process and could become a significant setback to Skopje's EU accession hopes. Although we believe that Brussels will remain committed to further integration of the Balkan country, with the EU in a bid to prevent major political instability, we believe that some permanent damage has been done and have accordingly downgraded our political risk ratings for the country.
Macedonia's economy will undergo a moderate recovery over the next few years following a disappointing 2012. However, scope for robust growth over the coming years is firmly limited by anaemic growth in the eurozone and obstacles to Macedonia's further integration with the EU.
We expect Macedonia's central government budget deficit to begin narrowing this year as economic activity picks up gradually and government spending is capped by a divided legislature. We caution, however, that demand for early elections and a tendency to overestimate revenues in the annual budget present risks to this view.
Major Forecast Changes We have lowered our 2014 real GDP growth forecast for Macedonia to 2.8% from 3.4% previously, and see lower growth in 2015 at 2.9% from our previous projection of 4.7% growth.
We have revised up our current account deficit forecast for Macedonia from 3.3% of GDP to 4.3% in 2013, but see the shortfall peaking at 4.8% of GDP in 2014, down from our previous expectations for a 5.6% of GDP deficit next year.
Key Risks To Outlook
Fiscal austerity across Europe threatens to permanently starve Macedonia's economy of external demand, which would lead to a sharp decline in fixed investment levels and decimating any remaining competitiveness of the export sector. With little to provide a boost to domestic demand, we may be overestimating the ability for the Macedonian economy to bounce back following a disappointing 2012.
The government has shown a tendency to overestimate revenues in its budgets, which could lead to a more expansionary fiscal policy than current economic conditions would warrant. Although this could see the deficit widen sharply, we note that expenditures have traditionally been adjusted to account for the lower-than-expected revenues in previous years.
Macedonia's net international investment position (NIIP) is increasingly becoming a concern, especially with the country's current account gap set to widen over the next two years. The NIIP has been largely driven by foreign direct investment, which signifies a longer-term commitment to the Macedonian economy, and should stave off a sudden outflow of foreign capital. However, measuring some 55% of GDP, Macedonia's NIIP has been increasingly driven by net other investments. Should foreign reserves begin to decline, in the event that the capital and financial account coverage of the current account deficit starts to erode, Macedonia's NIIP could escalate rapidly and prompt a painful adjustment further down the line.
Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
CHAPTER 1: POLITICAL OUTLOOK
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Heightened Risk To Stability Following Political Crisis
Macedonia's recent political deadlock still threatens to undermine the country's policy-making process and risked becoming a significant
setback to Skopje's EU accession hopes.
MACEDONIA: POLITICAL OVERVIEW TABLE
CHAPTER 2: ECONOMIC OUTLOOK
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Growth Outlook Overshadowed By Eurozone Weakness
Macedonia's economy will undergo a moderate recovery over the next few years, following a disappointing 2012. However, scope
for robust growth over the coming years is firmly limited by anaemic growth in the eurozone and obstacles to Macedonia's further
integration with the EU.
TABLE: ECONOMIC ACTIVITY
Fiscal Policy
Gradual Deficit Reduction Ahead
We expect Macedonia's central government budget deficit to begin narrowing in 2013 as economic activity picks up gradually and
government spending is capped by a divided legislature.
TABLE: FISCAL POLICY
Balance Of Payments
Weak Trade Dynamics To Push Increase External Borrowing
Macedonia's current account gap is set to widen over the coming years, as manufacturing exports are hit by still weak demand in
emerging Europe, and current transfers are affected by weak labour markets across Europe.
TABLE: BALANCE OF PAYMENTS (EURO)
Monetary Policy
Further Easing By 2014
Consumer price inflation will decline to average 3.1% y-o-y in 2013, from a year-end inflation print of 4.7% in 2012, paving the way for
further monetary easing. The weak state of the economy and low money supply growth will encourage the central bank to maintain its
easing bias into 2014.
Regional Sovereign Risk Rating
Potential Repricing Of Credit Risk Ahead
A better external environment has improved emerging Europe's sovereign outlook for 2013, but we see greater potential for relative
value plays in regional credit default swap (CDS) markets as investors shift out of low-yielding fixed income markets. We expect
Russian CDS to outperform Turkish CDS, and see potential underperformance for Lithuanian and Czech markets.
EUROPE SOVEREIGN RISK RATINGS - EVOLUTION OF ABILITY TO PAY
EUROPE SOVEREIGN RISK RATINGS - EVOLUTION OF WILLINGNESS TO PAY
CHAPTER 3: 10-YEAR FORECAST
The Macedonian Economy To 2022
Reform Agenda Will Generate Growth Beyond Recession
Macedonia's reformist trajectory looks set to generate solid GDP growth through to 2022 amid steady convergence to EU political and
economic standards. Nevertheless, we caution that political uncertainties could yet pose risks to the longer-term outlook.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
CHAPTER 4: BUSINESS ENVIRONMENT
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: EMERGING EUROPE - ANNUAL FDI INFLOWS
TABLE: TRADE AND INVESTMENT RATINGS
Market Orientation
TABLE: TOP EXPORT DESTINATIONS
Operational Risk
CHAPTER 6: BMI GLOBAL ASSUMPTIONS
Global Outlook
Past The Major Obstacles To Recovery
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS (%)
TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
Core Views
Major Forecast Changes
Key Risks To Outlook
CHAPTER 1: POLITICAL OUTLOOK
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Heightened Risk To Stability Following Political Crisis
Macedonia's recent political deadlock still threatens to undermine the country's policy-making process and risked becoming a significant
setback to Skopje's EU accession hopes.
MACEDONIA: POLITICAL OVERVIEW TABLE
CHAPTER 2: ECONOMIC OUTLOOK
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Growth Outlook Overshadowed By Eurozone Weakness
Macedonia's economy will undergo a moderate recovery over the next few years, following a disappointing 2012. However, scope
for robust growth over the coming years is firmly limited by anaemic growth in the eurozone and obstacles to Macedonia's further
integration with the EU.
TABLE: ECONOMIC ACTIVITY
Fiscal Policy
Gradual Deficit Reduction Ahead
We expect Macedonia's central government budget deficit to begin narrowing in 2013 as economic activity picks up gradually and
government spending is capped by a divided legislature.
TABLE: FISCAL POLICY
Balance Of Payments
Weak Trade Dynamics To Push Increase External Borrowing
Macedonia's current account gap is set to widen over the coming years, as manufacturing exports are hit by still weak demand in
emerging Europe, and current transfers are affected by weak labour markets across Europe.
TABLE: BALANCE OF PAYMENTS (EURO)
Monetary Policy
Further Easing By 2014
Consumer price inflation will decline to average 3.1% y-o-y in 2013, from a year-end inflation print of 4.7% in 2012, paving the way for
further monetary easing. The weak state of the economy and low money supply growth will encourage the central bank to maintain its
easing bias into 2014.
Regional Sovereign Risk Rating
Potential Repricing Of Credit Risk Ahead
A better external environment has improved emerging Europe's sovereign outlook for 2013, but we see greater potential for relative
value plays in regional credit default swap (CDS) markets as investors shift out of low-yielding fixed income markets. We expect
Russian CDS to outperform Turkish CDS, and see potential underperformance for Lithuanian and Czech markets.
EUROPE SOVEREIGN RISK RATINGS - EVOLUTION OF ABILITY TO PAY
EUROPE SOVEREIGN RISK RATINGS - EVOLUTION OF WILLINGNESS TO PAY
CHAPTER 3: 10-YEAR FORECAST
The Macedonian Economy To 2022
Reform Agenda Will Generate Growth Beyond Recession
Macedonia's reformist trajectory looks set to generate solid GDP growth through to 2022 amid steady convergence to EU political and
economic standards. Nevertheless, we caution that political uncertainties could yet pose risks to the longer-term outlook.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
CHAPTER 4: BUSINESS ENVIRONMENT
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: EMERGING EUROPE - ANNUAL FDI INFLOWS
TABLE: TRADE AND INVESTMENT RATINGS
Market Orientation
TABLE: TOP EXPORT DESTINATIONS
Operational Risk
CHAPTER 6: BMI GLOBAL ASSUMPTIONS
Global Outlook
Past The Major Obstacles To Recovery
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS (%)
TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
