North Macedonia flag North Macedonia: Economic and Political Overview

The economic context of North Macedonia

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

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). The COVID-19-induced crisis, however, prompted a GDP drop, with the economy returning to growth in 2021 (+4% of GDP) and 2022 (+2.7) driven by private consumption and investment. Rising energy prices and a weak performance in Eurozone partner countries are expected to weaken domestic demand and result in a negative contribution from net trade in 2023, with GDP growth forecasted at 3% by the IMF. In 2024, improving external demand and gradual fiscal consolidation should help growth return closer to its pre-crisis level (3.9%), although uncertainty remains high due to geopolitical risks and energy price pressures.

In 2022, strong revenue growth and lower execution of capital spending helped counterbalance the measures taken by the government to mitigate the energy crisis, which amounted to around EUR 750 million (5.7% of GDP), resulting in an overall budget deficit of 5.3% of GDP. Fitch Ratings projects the general government deficit to decline to 4.8% of GDP in 2023, balancing the weaker growth outlook against the phasing out of certain energy support measures and continued under-execution in capital spending. The country’s debt-to-GDP ratio recorded a marginal increase in 2022, reaching 53.8% from 53.2% one year earlier. The IMF forecasts a ratio of 51.4% this year and 52.1% in 2024. Three-quarters of foreign-currency debt is euro-denominated and currency risks are mitigated by the longevity and credibility of the exchange rate peg. Meanwhile, inflation spiked to 10.6% in 2022 fuelled by high energy and food prices. The National Bank increased its policy rate several times throughout the year, which should help reduce the inflation rate, forecasted at 4.5% this year and 2.4% in 2024 by the IMF. While EU accession talks have been blocked by Greece due to a historic dispute over the name of the country, both the EU and Greek authorities praised the decision of the North Macedonian parliament to change it to the Republic of North Macedonia. In March 2020, the General Affairs Council of the EU decided to open accession negotiations with North Macedonia, and in July 2020 the draft negotiating framework was presented to the Member States. Nevertheless, in November the Bulgarian government officially announced that it does not approve the EU negotiation framework for North Macedonia’s accession process and thus practically blocked the country’s membership process over slow progress on the implementation of the 2017 Friendship Treaty between the two countries. This obstacle was overcome after North Macedonia and Bulgaria signed a bilateral protocol in July 2022, but the road ahead is still long as before formal membership talks are launched, North Macedonia must amend its Constitution to include the Bulgarians among the other nation-building countries listed in its preamble.

Unemployment – estimated at 15.2% in 2022 by the IMF – is still really high and was exacerbated by the COVID-19 crisis. Despite the recovery and continued government support to employers, employment growth is expected to pick up only marginally over the forecast horizon, with the unemployment rate declining to 15% in 2023 and 14.8% next year (IMF). 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 19,783 in 2022 by the IMF; 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 20202021202220232024
GDP (billions USD) 12.1413.8914.1015.0216.13
GDP (Constant Prices, Annual % Change) -6.14.02.73.03.9
GDP per Capita (USD) 5,8676,7146,8167,2627,797
General Government Gross Debt (in % of GDP) 51.953.253.851.452.1
Inflation Rate (%) 1.23.210.64.52.4
Unemployment Rate (% of the Labour Force) 16.415.715.215.014.8
Current Account (billions USD) -0.42-0.49-0.94-0.69-0.67
Current Account (in % of GDP) -3.4-3.5-6.7-4.6-4.1

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

The Republic of North Macedonia (formerly known as FYROM) has been traditionally based 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). Arable agricultural land accounts for half of the total territory, of which about two-thirds are categorised as pastures and the rest as arable agricultural land. According to the data of the State Statistical Office, cultivated land in 2021 covered an area of 516,733 hectares. The country mainly produces grapes, tobacco, vegetables and fruits. Sheep and goat breeding is equally important. There are a few deposits of iron, copper and lead in the country. One of the limits of the sector is that parcels are very small and fragmented, with over half of the parcels consisting of two to five hectares, and only 0.14% with 50 hectares or more.

The industrial sector represents 22.4% of the GDP and employs 31% 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 edged down 0.3% on the year in 2022.

The tertiary sector represents 56.9% of the GDP and employs 55% 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 2022 the number of foreign tourists who visited North Macedonia reached 537,436, up by 82.8% year-on-year (mostly from Turkey, Serbia and Greece – data from the national statistical office).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 13.9 31.1 55.0
Value Added (in % of GDP) 7.2 22.4 56.9
Value Added (Annual % Change) -1.2 -2.4 5.2

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

See the country risk analysis provided by Coface.
 

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Sources of General Economic Information

Ministries
Ministry of Finance
Ministry of Justice
Ministry of Economy
Ministry of Transportation and Communications
Ministry of Agriculture
Ministry of Labor and Social Affairs
Statistical Office
National Bureau of Statistics
Central Bank
National Bank of the Republic of North Macedonia
Stock Exchange
Stock Exchange
Economic Portals
 

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Latest Update: March 2023