anita angelovska - bezoska : macedonia ’ s current macroeconomic landscape and main challenges ahead speech by ms anita angelovska - bezoska, vice - governor of the national bank of the republic of macedonia, at the economic and financial dialogue on the economic reforms programs on western balkan and turkey, brussels, 12 may 2015. * * * 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 assessment of our economic reforms program for the period 2015 – 2017. let me mention that we appreciate very much this dialogue with the eu institutions and the overall feedback on our policies that we have received during the process and we believe that it is highly beneficial regarding our preparedness for joining the eu. at this point, i would like to address several important issues related to the current macroeconomic landscape of the macedonian economy, as well as the main challenges ahead. the growth momentum was kept in 2014, with the real gdp growth accelerating to 3. 8 % p. a. as the external environment is not sufficiently “ growth - conducive ”, the strong performance of the domestic economy is explained by country - specific factors. firstly, it is a reflection of the positive fundamental shifts, with growing foreign investments, mainly in the tradable sector. they are helping the economy to gradually increase its resilience, by significantly increasing the diversification of the production and the export structure of the economy, but also by yielding positive second - round effects, improving the labor market conditions, increasing the know - how, integrating domestic suppliers in the production process. secondly, the economy has been impacted favorably by the fiscal stimulus in the infrastructure, an area continuously being pinpointed as a weak spot, when it comes to the structural competitiveness. hence, albeit the fiscal impulse does have positive short run effects on growth – bridging over the current “ anemic external environment ”, it also affects the long - term potential of the economy. the solid economic recovery is significantly improving the labor market conditions, increasing the labor demand, reducing the unemployment, positively impacting the participation rate, but also boosting the productivity growth of the economy. as being largely export and investment - led, the solid growth does not create pressures on the external position of the economy, nor on the inflation. on the contrary, the external sector is in a relatively good shape, with

. investment cycle is expected to be further strengthened by the continuation of the productive fiscal investments. as the external demand is envisaged to recover further, additional stimuli is expected through this channel. the above mentioned growth factors are expected to strengthen further the labor market and the disposable income of the households, hence boosting the private consumption as well. the growth expectations provide room for additional rise of the deposit potential in the banking system, which accompanied with the rise in the credit demand and the willingness of the banks to lend, should enable credit growth at a rate of 9 – 10 % in the period to come. the inflation is expected to be influenced mainly by the global prices of primary commodities and the consumers prices of our main trading partners. an average inflation of 0. 5 % is expected for 2015, with the current forecast indicating its reversal to 2 % in 2016, reflecting the rise in the demand and in the import prices. the structural improvements in the export sector are expected to continue in 2015, which along with the overall external recovery and the much lower oil prices, are envisaged to bring about a moderate current bis central bankers ’ speeches account deficit of bellow 1. 6 % of gdp. in the following year, widening to 3 % is expected, reflecting the fall in private transfers and import pressures from the new investment. the external financing needs, within the current scenario, are expected to be covered by further inflows of foreign direct investments and by the public borrowing for infrastructure purposes. the current forecast points to a rather stable external debt to gdp ratio. no major pressures are foreseen in the following two years on foreign reserves, and they are to be maintained at the adequate level. risks surrounding this baseline macroeconomic scenario should not be neglected. for us, as a small an open economy, they mostly come from the external environment and our main trading and financial partners. although with the latest monetary easing of the ecb the downside risks to the euro zone growth are less pronounced, and in general the global growth risks are more balanced, they are still present and if being materialized, could impact the economy. additional source of risks are the sharp and sudden swings in the primary commodities prices, which for country like ours, can change the envisaged economic profile to a large extent. a new, additional source of risks is the current domestic political context, which can harm the economy, if not being tackled swiftly. of course, the risks are challenging and are to be closely