North Macedonia Economic Forecast

Economic conditions likely remained muted in Q1, after annual GDP growth slowed to a two-year low of 0.6% in Q4. Data for Q1 paints a mixed picture. On the one hand, sky-high inflation and tighter financing conditions should have hurt domestic demand. On the other hand, production data shows a broad-based improvement: Industrial output rebounded year on year in February and grew further in March, while retail sales posted a strong increase in Q1. Moreover, the merchandise trade deficit shrunk notably on an annual basis in March on rising exports and falling imports. In other news, on 14 April, Fitch Ratings revised North Macedonia’s ‘BB+’ outlook to stable from negative, citing the economy’s resilience to external shocks and sound macroeconomic policies.

Inflation fell to a nine-month low of 14.7% in March, from 16.7% in February, chiefly thanks to a softer increase in prices for food and transport. That said, the moderation will likely not be enough to sway the Central Bank away from its monetary policy tightening course, with the next meeting due on 10 May. Inflation should ease further by year-end.