Brussels, 19 May 2025 (MIA) - Macedonian GDP growth is projected to gradually accelerate in 2025, supported by a major public infrastructure project and by household consumption, which benefits from strong wage growth and abating inflation, according to the European Commission's Spring 2025 Economic Forecast for the country. 

"GDP growth accelerated in 2024, driven by investment and public consumption. Headline inflation continued to fall, yet it resurged towards the end of the year mainly due to base effects," reads the forecast. 

According to the EC, real GDP increased by 2.8% in 2024, with growth driven by investment and by public consumption, with the latter partly reflecting a strong rise in public sector wages.   

"The contribution of the external balance to growth turned negative due to slowing exports, largely reflecting the weakness in the German economy, the biggest trading partner of North Macedonia. The current account moved back into deficit in 2024, as the merchandise trade balance worsened and remittances fell," the document notes.

The EC adds that the fiscal deficit turned out lower in 2024 than the government’s revised target, partly as capital expenditure was again under-implemented, MIA's Brussels correspondent reports.    

"Though gradually decreasing over the forecast period, the fiscal deficit is likely to stay above 4% of GDP in 2025, as concrete revenue enhancing measures are lacking, while current expenditure is bound to rise significantly," reads the forecast. 

The EC points out that the implementation of a major public roads project, covering parts of Trans-European Corridors 8 and 10d, is projected to make a strong contribution to domestic demand in 2025 and 2026, given its high domestic input share, and further rising wages and pensions, declining inflation, and easing credit conditions are projected to provide a boost to household spending.  

"Yet, net exports are expected to detract from growth in both years, given a muted economic recovery in major export markets, in particular in the automotive sector, and a rise in imported inputs to feed investment and exports. The negative impact of the external balance on growth would, however, diminish each year based on expectations of gradually strengthening external demand and increasing metal production capacity, a key export product," says the EC. 

The European Commission says that well-calibrated monetary policy and abating foreign price pressures supported the decrease of inflation in 2024, to 3.5% on average. It adds that inflation picked up again as of September, yet largely reflecting base effects from the withdrawal of temporary controls on basic food prices. Inflation excluding energy and food remained sticky with second-round effects of high energy and food prices on other sectors receding slowly. 

"The central bank gradually lowered the key policy rate from 6.30% in September 2024 to 5.35% in February 2025. Inflation is projected to remain above 2% in 2025 and 2026, with potential domestic price pressures from wage and credit growth," the document reads. 

The Commission notes that employment growth picked up in the second half of 2024, the number of unemployed went down, yet the labour force continued to decline, albeit at a slower pace than in the preceding year. 

"Average gross nominal wages rose by 12.9% y-o-y on average in 2024, which is slightly less than in 2023, but real wages still grew faster than sluggish productivity. Real wages are likely to increase also in 2025, due mainly to the continuing implementation of the 2023 collective wage agreement for the public sector and a further increase in the minimal wage in March 2025, amidst further declining inflation," the Commission's Spring 2025 Economic Forecast for the country notes.  

It further adds that the Macedonian fiscal deficit stood at 4.4% of GDP in 2024, remaining below its revised target of 4.7%.  

"The deficit is set to narrow gradually this year and next, but fiscal consolidation will remain sluggish. No revenue-enhancing measures are foreseen and plans to raise additional revenue from formalising the informal economy and from improving the tax administration remain vague. Yet, mandatory spending is increasing, in particular on public sector wages and pensions," the EC says. 

The Commission also says that capital expenditure in the country is projected to rise gradually from 3% of GDP in 2024 to 5.7% in 2026, and financing needs are elevated, with another Eurobond repayment looming in 2026, while debt levels, sovereign borrowing cost and interest expenditure have been rising.

According to the EC, risks to the growth outlook stem from weaker domestic demand than anticipated. Household consumption might be dampened by sustained inflation and a more muted employment outlook due to high wage growth. Also, given the lack of substantial progress in improving public investment management, the Road Corridor 8/10d project could face implementation risks. 

"On the other hand, structural reforms, spurred by the EU’s Growth Plan, could boost productivity and growth," concludes the European Commission's Spring 2025 Economic Forecast for the country.

Photo: MIA archive/EC