Dimitar Bogov: Economic and financial cycle spillovers – reconsidering domestic and cross border channels and policy responses Address by Mr Dimitar Bogov, Governor of the National Bank of the Republic of Macedonia, at the 5th Annual Research Conference “Economic and financial cycle spillovers – reconsidering domestic and cross border channels and policy responses”, Skopje, 7–8 April 2016. *  *  *  Dear Governors, Your Excellences, Ladies and Gentlemen, Dear guests, Let me wish you a warm welcome to our fifth Annual Research Conference that we usually host to mark the anniversary of the country’s monetary independence. This year’s Conference is a kind of a small jubilee considering the fact that for five consecutive years we have been inviting policy makers and researchers from the region and wider to discuss main policy issues and research questions, creating useful interaction and mutual knowledge increment, on which we are very proud. In addition, this year’s Conference coincides with yet another great anniversary – celebration of 70 years of central banking activities in the Republic of Macedonia and the conference is among the events that mark this immense anniversary throughout the year. As you probably noticed, this year we have chosen quite comprehensive and challenging Conference topic: Economic and Financial Cycle Spillovers: Reconsidering Domestic and Cross Border Channels and Policy Responses. Although not a new issue, it has been fully indorsed in the last global crisis and considered to be one of its main lessons that is still widely explored in the central banking and academic community.

Namely, during the last global crisis, our economy followed relatively quick and steady recovery from the trough at the beginning of the crisis that was supported by the financial cycle pick up. The banking sector has proven to be sound and stable all these turbulent years, with slowdown of lending relative to the pre-crisis period, yet with moderate credit growth rates supportive to the economic rebound. A related point to consider is the solid ground of the banking system taking into account not only the high capital adequacy and liquidity, but also the relatively moderate level of non-performing loans, especially compared to the peer countries of the region. Besides the high foreign capital in the banking system, cross border effects have remained contained, mainly due to the simple framework of banking operations and strict banking regulations. Last but not least, sound economic recovery also transmits positive spillovers to the financial sector developments. Regarding the economic cycle upward movements, we should underline the strong fundamentals of the Macedonian economy that have been obviously fighting off challenges from the trembling global environment as well as domestic political instability since the beginning of the previous year. The main reasons behind these economic performances were the structural changes in the economy in recent years, which supported export diversification and reduction of unemployment. Improved country’s economic fundamentals are expected to continue providing support to the financial cycle picking up, although both domestic and external risks are still being present.