anita angelovska - bezoska : macedonia – current macroeconomic developments, medium term outlook and challenges ahead speech by ms anita angelovska - bezoska, vice - governor of the national bank of the republic of macedonia, at the ministerial dialogue on the preaccession economic programs on eu candidate countries, european commission, brussels, 9 july 2013. * * * dear ministers, dear representatives of the european commission, european central bank and eurostat, at the beginning, let me express our gratitude to the european central bank, european commission and eurostat for their contribution in assessing our preaccession economic program for the period 2013 – 2015. within the pep we already presented the proactive role of the national bank of the republic of macedonia in dealing with the global crisis consequences, by undertaking a mix of conventional and unconventional measures, aimed at maintenance of the price stability, financial stability, as well as stimulating economic activity. i will use this opportunity to point out several issues regarding the current macroeconomic developments, medium term outlook and challenges ahead. the latest available data on macedonian economy for the first quarter of 2013 indicated a gradual revival of the economy with real annual gdp growth of 2. 9 %, slightly higher than our expectations, being mainly driven by the investment and net export. generally, macedonian economy has been relatively successful in offsetting the crisis consequences which was mainly due to the solid initial conditions prior to the crisis without massive macroeconomic imbalances, the establishment of few new production capacities based on foreign capital that largely contributed to the export diversification, stable and sound financial system and adequate macroeconomic policy mix. the environment for monetary policy implementation in 2013 is quite favorable, considering relatively stable inflation developments and comfortable foreign reserves level. in the first half of 2013, the average inflation was 3. 6 %, mainly due to higher food and energy prices. our latest forecast for the average inflation rate in 2013 is 2. 8 %, with expected further slowdown to 2. 3 % ( close to our historical level ) in 2014, until when no pressures of higher significance by the demand side are being expected. however, there are risks related to this forecast, reflecting the uncertainty about energy prices as well as the world and domestic food prices dynamics and their direct and indirect pass - through to inflation. the performances in the external sector in the first several months of 2013 and the latest estimates indicate quite favorable position in the balance of payments for this year. the reduced trade deficit is neutralizing the lower

rest of the world? the conventional policy prescription includes the encouragement of higher public savings in the united states, the implementation of structural reforms designed to increase flexibility and raise potential growth rates in economies outside the united states, and movement toward increased exchange rate flexibility. the principal rationale for each of these policies is independent of the external imperative. but the fact that these policies would contribute to a benign external adjustment process strengthens the case for action on these fronts. improving the u. s. fiscal position is the most effective means we have available to reduce our vulnerability during this prolonged period of adjustment. the united states needs to produce a substantial reduction in its structural deficit over the medium term and begin to reduce the more dramatic longer term gap between resources and commitments. and the united states needs to restore a reasonable cushion in its structural budget balance to help deal with future shocks. if we are unable to begin to generate more confidence in the capacity of the u. s. political system to produce these improvements, we would face a greater risk of future increases in risk premia. and even though substantial fiscal consolidation would not by itself bring the external imbalance down to a more sustainable level, it would improve the prospect for a smoother adjustment to that outcome. the general risk inherent in these imbalances — the risk of more adverse growth outcomes and asset price volatility — reinforces the importance of sustaining the strength and resilience of the u. s. financial system. our financial system today is in substantially stronger shape than it was even in the recent past, and the major institutions now appear to be managed so that they are less vulnerable to the type and magnitude of shocks they ’ ve experienced in the past couple decades. what is important of course is that they are as well positioned to deal with the full range of potential future risks. this requires continued investments in risk management and controls to match the increasing complexity of these challenges, and it requires a cushion of capital and liquidity large enough to capture the potential risk of losses in a less favorable macroeconomic environment. the increase in the flexibility and resilience of the u. s. economy over the past two decades has a lot to do with the increased openness of the u. s. economy. and sustaining this flexibility, which is so important to our capacity to adjust to shocks, requires that we continue to support the process of openness and economic integration. we jeopardize future income gains if we are unable to sustain support in the united states