North Macedonia Economic Outlook
GDP rose 0.6% year on year in Q4, marking the weakest expansion in two years on the back of deteriorating domestic demand. Investment activity contracted markedly in Q4, contrasting the previous quarter’s strong growth, while private spending lost steam due to high inflation and higher interest rates. Moreover, public spending continued to shrink in the quarter, albeit at a slower pace than in Q3. On the external front, growth in exports of goods and services slowed in Q4 but remained healthy and outpaced an increase in imports; the external sector contributed positively to the overall Q4 reading. Turning to this year, economic conditions likely remain muted amid sky-high inflation in January. In other news, in early February, the European Commission recently proposed EUR 100 million in Macro-financial Assistance to cover the country’s financing needs in 2023 and 2024.
North Macedonia Inflation
Inflation moderated to 17.1% in January from 18.7% in December. That said, food price inflation remained stuck above 25.0%. As a result, on 8 February, the Central Bank continued its tightening cycle, hiking the policy rate by 50 basis points to 5.25%. Inflationary pressures should decline markedly by year-end thanks to cooling demand and a higher base of comparison.