19th October 2023, Skopje – Economic growth is expected to moderately accelerate in the medium term led by the rise in public investments and recovered public consumption, while EU accession negotiations are moving ahead, which may accelerate reform process and unlock growth potential, as stated under the WB Western Balkans Regular Economic Report. Increased capital execution via medium-term budget, along with fiscal consolidation and fiscal sustainability, as part of the reforms under the budget process, will also be crucial for growth acceleration in the medium run. World Bank expects for the inflation to continue to decrease this and next year, whereby historical low of around 2% would be attained in 2025. Real wages in the public sector will continue to increase as per the new public sector collective agreement.
In the short run, i.e. as per World Bank’s forecasts, growth in 2023 is expected to account for 1.8% in North Macedonia, as same as in Bosnia and Herzegovina, Kosovo and Serbia. Reduced growth expectations reflected the decreased growth projections of the European Union and the recession in Germany, taking into account that these are our major trade partners, given our small and open economy, with foreign trade accounting for 160% of GDP. Under the Reports, it is stated that capital expenditures increased by 2.5 percentage points of GDP during 2023, owing to the major infrastructure projects, primarily Corridor VIII and Corridor Xd highway sections, already contributing to job creation in the construction sector. As of the first half inclusive, budget deficit has accounted for approximately 2.6%, with the increase in public sector wages exerting fiscal pressures. However, solidarity tax and adjustment of the preferential VAT rate on certain products, as well as abolishment of tax exemptions for some of TIDZ companies will provide for creating additional fiscal room for anti-crisis measures. Inflation decelerated to single digits as a result of the government measures on freezing the prices, although there are still risks about new pressures thereon.
Sustained wage growth has outpaced inflation since April 2023. Wage growth was registered in all economic sectors in the first half of the year, led by a mandatory rise of the minimum wage. Wage growth for works in the field of construction, public administration and education was above the average in this period. Wages are set to rise even further as the Government signed a new collective agreement for the public sector that includes: a 10 percent wage increase as of September 2023; a revision to the wage-setting methodology in 2024 linking the base wage to the national gross wage; an annual leave bonus at 30 percent of the average net wage; Minimum wage in Western Balkan region increased twice as fast as compared to the EU. As per WB Report, the ratio of the minimum wage to the average wage is over 50% in three countries of the region, i.e. North Macedonia, Albania and Montenegro.
In addition, WB noted that youth unemployment will continue to decline, thus reducing to around 9% for a period of three years. Poverty rate will be continuously reduced, thus declining by 20% in cumulative terms, in the medium run. GDP per capita will increase by 7% in medium run, while Macedonian economy’s potential for growth will increase as the country moves closer to the EU by implementing the structural reforms and strengthening the economy.
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