2013-04-19 20:03:08 - Fast Market Research recommends "Macedonia Business Forecast Report Q2 2013" from Business Monitor International, now available
Macedonia's recent political deadlock still threatens to undermine the country's policy-making process and could become a significant setback to Skopje's EU accession hopes. Although we believe that Brussels will remain committed to further integration of the Balkan country, with the EU in a bid to prevent major political instability, we believe that some permanent damage has been done and have accordingly downgraded our political risk ratings for the country.
Macedonia's economy will undergo a moderate recovery over the next few years following a disappointing 2012. However, scope for robust growth over the coming years is firmly limited by anaemic growth in the eurozone and obstacles to Macedonia's further integration with the EU.
We expect Macedonia's central government budget deficit to begin
narrowing this year as economic activity picks up gradually and government spending is capped by a divided legislature. We caution, however, that demand for early elections and a tendency to overestimate revenues in the annual budget present risks to this view.
Full Report Details at
- www.fastmr.com/prod/584470_macedonia_business_forecast_report_q2 ..
Major Forecast Changes
We have lowered our 2014 real GDP growth forecast for Macedonia to 2.8% from 3.4% previously, and see lower growth in 2015 at 2.9% from our previous projection of 4.7% growth.
We have revised up our current account deficit forecast for Macedonia from 3.3% of GDP to 4.3% in 2013, but see the shortfall peaking at 4.8% of GDP in 2014, down from our previous expectations for a 5.6% of GDP deficit next year.
Key Risks To Outlook
Fiscal austerity across Europe threatens to permanently starve Macedonia's economy of external demand, which would lead to a sharp decline in fixed investment levels and decimating any remaining competitiveness of the export sector. With little to provide a boost to domestic demand, we may be overestimating the ability for the Macedonian economy to bounce back following a disappointing 2012.
The government has shown a tendency to overestimate revenues in its budgets, which could lead to a more expansionary fiscal policy than current economic conditions would warrant. Although this could see the deficit widen sharply, we note that expenditures have traditionally been adjusted to account for the lower-than-expected revenues in previous years.
Macedonia's net international investment position (NIIP) is increasingly becoming a concern, especially with the country's current account gap set to widen over the next two years. The NIIP has been largely driven by foreign direct investment, which signifies a longer-term commitment to the Macedonian economy, and should stave off a sudden outflow of foreign capital. However, measuring some 55% of GDP, Macedonia's NIIP has been increasingly driven by net other investments. Should foreign reserves begin to decline, in the event that the capital and financial account coverage of the current account deficit starts to erode, Macedonia's NIIP could escalate rapidly and prompt a painful adjustment further down the line.
Partial Table of Contents:
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Heightened Risk To Stability Following Political Crisis
- Macedonia's recent political deadlock still threatens to undermine the country's policy-making process and risked becoming a significant setback to Skopje's EU accession hopes.
MACEDONIA: POLITICAL OVERVIEW TABLE
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Growth Outlook Overshadowed By Eurozone Weakness
- Macedonia's economy will undergo a moderate recovery over the next few years, following a disappointing 2012. However, scope for robust growth over the coming years is firmly limited by anaemic growth in the eurozone and obstacles to Macedonia's further integration with the EU.
TABLE: ECONOMIC ACTIVITY
Gradual Deficit Reduction Ahead
- We expect Macedonia's central government budget deficit to begin narrowing in 2013 as economic activity picks up gradually and government spending is capped by a divided legislature.
TABLE: FISCAL POLICY
Balance Of Payments
Weak Trade Dynamics To Push Increase External Borrowing
- Macedonia's current account gap is set to widen over the coming years, as manufacturing exports are hit by still weak demand in emerging Europe, and current transfers are affected by weak labour markets across Europe.
TABLE: BALANCE OF PAYMENTS (EURO)
Further Easing By 2014
- Consumer price inflation will decline to average 3.1% y-o-y in 2013, from a year-end inflation print of 4.7% in 2012, paving the way for further monetary easing. The weak state of the economy and low money supply growth will encourage the central bank to maintain its easing bias into 2014.
Regional Sovereign Risk Rating
Potential Repricing Of Credit Risk Ahead
- A better external environment has improved emerging Europe's sovereign outlook for 2013, but we see greater potential for relative value plays in regional credit default swap (CDS) markets as investors shift out of low-yielding fixed income markets. We expect Russian CDS to outperform Turkish CDS, and see potential underperformance for Lithuanian and Czech markets.
Full Table of Contents is available at:
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