Skopje, 11 April 2024 (MIA) — North Macedonia's inflation is expected to reach 3% in 2024 before returning to the country's long-term average of 2% in 2025-26, the World Bank said Thursday presenting its new Western Balkans Regular Economic Report.

Wage increases not aligned with productivity may keep inflation high in 2024, according to World Bank economist Joana Madzhoska.

"Throughout the projection period we assume this [inflation] will decrease, remaining higher in 2024 than the long-term average but still much lower than last year when we saw 9.4% percent inflation growth and the year before that of 14.2%," Madzhoska said.

"The downward trend continues, but this slow return to normal is due to secondary effects of inflation. If at the start inflation was mainly driven by growing food and energy prices, now the growth has been transferred to production, products, higher production prices, higher prices of other products that use inputs (energy, services, employee costs). This is the price increases' secondary effect that continues. We see it in a higher so-called core inflation rate. It still remains high for North Macedonia. This is why we expect pressures from it as well as from the continuous growth of wages," she said.

According to World Bank senior economist for the Western Balkan countries and country economist for North Macedonia Sanja Madzharevikj-Shujster, the state responded to inflation with appropriate policies.

"North Macedonia is doing rather well compared to, for example, Serbia, which saw the highest inflation in the region," Madzharevikj-Shujster said.

"Inflationary pressures are decreasing, the policy response has been adequate, but the risk we see is increasing wages that are not in line with productivity. That's something that could keep inflation at an elevated level in 2024. Our projections show that inflation is approaching historical targets, but is still rising," she said.

"We do not expect any global impact from commodity prices. These pressures will disappear. We expect pressures from households and the labor market. Throughout the region, we see wages are increasing by a considerable percentage while productivity is not increasing, except in Kosovo," the senior economist said.

According to her, North Macedonia's GDP growth last year was the lowest in the region, mainly because export was not as strong as expected.

"This is linked to the German automobile industry, which has been in decline over the past two years. Growth prospects are not good this year, either, considering that Chinese electric vehicles are flooding the European market," Madzharevikj-Shujster said, urging local companies to look for ways of meeting the demands of the electric vehicle sector.

"Last year there was also a sharp drop in inventories, which was not foreseen in our previous projection when we said the growth would be 1.10%. We need to see where this originates. According to the State Statistics Office, this could be due to the price of inventories or because previous inventories were depleted," she said.

Regarding the fiscal deficit, the World Bank noted a slight increase.

North Macedonia's GDP growth was 1% in 2023, the lowest in the region. It is expected to accelerate to 2.5% in 2024 and 2.9% in 2025. It was also noted that his year's growth was expected to be strongly driven by highway construction.

World Bank Country Manager for Kosovo and for North Macedonia Massimiliano Paolucci and World Bank senior economist and team lead for Competitive Cities Megha Mukim also attended the presentation. mr/