North Macedonia flag North Macedonia: Economic and Political Overview

The economic context of North Macedonia

Economic Indicators

North Macedonia is the poorest of the former Yugoslav republics; however, it has made significant progress in expanding its economy over the past decade: GDP grew an average of 5% annually between 2004 and 2008, driven mainly by domestic consumption and exports (notably metals and textile products). However, following a subdued post-pandemic recovery, economic growth has decelerated due to weakened external demand and more restrained household consumption. The latest estimates from the IMF pointed to a GDP growth of 2.3%, driven by lower external demand and a slowdown in investment. Net FDI inflows are expected to enhance export capacity, while the resurgence of growth in key trading partners will further bolster real growth, reaching 3.2% in 2024 and 3.5% in 2025.

Despite facing high borrowing costs and new spending commitments, public finances were partially relieved by a budget reallocation in September, managing to accommodate additional expenditure without exceeding the full-year deficit target. The government increased the minimum pension and approved a further 10% raise in public sector wages as of September, adding approximately 0.2% of GDP to projected current expenditure for 2023. Revenue, boosted by lingering high inflation, is dampened by subdued domestic demand. However, the Parliament's adoption of a one-off solidarity tax in September is expected to augment 2023 revenue by an additional 0.6% of GDP. Overall, the general government deficit is forecasted to rise slightly in 2023 compared to 2022 (estimated at 4.5% of GDP by Fitch Ratings). If planned fiscal consolidation measures, including phasing out energy subsidies, are executed, the fiscal deficit is anticipated to gradually decrease in 2024 (3.8% of GDP) and 2025 (3.5%), though it will remain significantly above the pre-pandemic level of 2.2% of GDP in 2019. Government debt – at 51.6% last year as per the IMF - is projected to persist above 50% of GDP in the medium term due to elevated primary deficits and increasing interest payments. Annual consumer price inflation, which peaked at 19.8%, gradually declined but remained elevated, averaging around 9% in 2023. Lingering spillover effects from recent peaks in energy and food prices affected domestic sectors. However, inflation is expected to ease to the long-term average of 2% by 2025. The central bank continued to raise the key policy rate in the first nine months of 2023, albeit at a slower pace, reaching 6.3% in September (data EU Commission). While EU accession talks have faced obstacles due to Greece's historical dispute over the country's name, both the EU and Greek authorities commended North Macedonia's parliament for changing it to the Republic of North Macedonia. In March 2020, the EU's General Affairs Council agreed to begin accession negotiations with North Macedonia, and the draft negotiating framework was presented to Member States in July 2020. However, the Bulgarian government's refusal to approve the EU negotiation framework in November 2020 stalled North Macedonia's membership process due to slow progress on implementing the 2017 Friendship Treaty. This hurdle was overcome in July 2022 after North Macedonia and Bulgaria signed a bilateral protocol. Nonetheless, before formal membership talks commence, North Macedonia must amend its Constitution to acknowledge Bulgarians among the nation-building countries listed in its preamble.

Low and decreasing labor force participation, particularly among women and young workers, contributed to a continued reduction in the labor force and a decline in the unemployment rate. According to the EU Commission, employment is anticipated to steadily increase during the forecast period, albeit at a moderate rate (from an unemployment rate of 14% in 2023 to 14% by 2025). Although employment growth in manufacturing industries remained subdued in 2023 due to a backlog of inventories affecting current production, the services sectors, notably trade, are expected to drive the majority of job creation. Consequently, the unemployment rate is forecasted to further decrease as the labor force contracts. However, much of the workforce is employed in the informal economy, thus the exact level of unemployment is hard to assess. According to the latest figures from Eurostat, about a third of North Macedonian citizens live below the poverty line or are at risk of poverty and social exclusion. The country’s GDP per capita (PPP) was estimated at USD 20,162 in 2022 by the World Bank; nevertheless, the income ratio between the richest and poorest 20% of the population is more than eight times, the highest in the EU.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 13.7414.7715.8716.9017.95
GDP (Constant Prices, Annual % Change) 2.21.02.73.73.9
GDP per Capita (USD) 6,6577,1587,6948,1938,702
General Government Gross Debt (in % of GDP) 51.654.554.654.554.0
Inflation Rate (%) 14.29.44.02.52.0
Unemployment Rate (% of the Labour Force) 14.414.314.114.013.9
Current Account (billions USD) -0.840.10-0.13-0.46-0.49
Current Account (in % of GDP) -6.10.7-0.8-2.7-2.7

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

The Republic of North Macedonia (formerly known as FYROM) has traditionally relied on the agriculture sector, which nowadays represents 7.2% of the GDP and employs 14% of the active population (World Bank, latest data available). According to figures from the UNDP, the North Macedonian agricultural sector is a very profitable business, also due to widespread governmental subsidies (the largest portion of the agriculture budget consists of direct payments for agriculture production and rural development). Crop cultivation is concentrated in the southern and eastern regions of the nation, benefiting from the favorable climate. Key vegetable crops include potatoes, beans, peppers, and tomatoes, while prominent fruit crops comprise apples, plums, peaches, and pears. Tobacco stands as the paramount agricultural export commodity. Arable agricultural land accounts for half of the total territory, of which about two-thirds are categorized as pastures and the rest as arable agricultural land. According to the data of the State Statistical Office, cultivated land in 2022 covered an area of 514,436 hectares.

The industrial sector represents 22.9% of the GDP and employs 30% of the active population. It includes chemical products, steel, machinery, and textiles. The textile sector constitutes the second main industry of the country after metallurgy (especially the leather industry), with the textile production output being close to an all-time high in the last two decades. The automotive sector enjoys dynamic development and growing importance for the country’s economy. The manufacturing sector alone contributes almost 13% of the GDP (World Bank). According to data from the country’s statistical office, North Macedonia's industrial production increased by 0.7% on the year in 2023. While manufacturing decreased by 0.1% and mining by 1.6%, the utilities sector edged up by 13%.

The tertiary sector represents 58.8% of the GDP and employs 60% of the total workforce. The main income sources come from transport, telecommunications, and energy production. The information and communication technology industry is the fastest-growing sector of the Macedonian economy. The banking sector is self-funded and stable, and it is composed of 17 institutions (fifteen banks and two savings houses – European Banking Federation). Trade, transport, and tourism were among the sectors most affected by the COVID-19 crisis; however, in 2023, the number of foreign tourists who visited North Macedonia reached around 734,000, up by 37.8% year-on-year.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 10.8 30.8 58.4
Value Added (in % of GDP) 8.1 22.9 58.8
Value Added (Annual % Change) 2.0 -4.3 4.7

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
68,6/100
World Rank:
46
Regional Rank:
27

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

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Latest Update: May 2024

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