ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
MACEDONIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
The Internal Macedonian Revolutionary
Organisation-Democratic Party of Macedonian
National Unity (VMRO-DPMNE) of the prime
minister, Nikola Gruevski, is in a strong position
following its sweeping victories in the presidential
and local authority elections, held in March and
April. With its latest triumphs, the party has built
on its success in the parliamentary election of
June 2008, when it was returned to power with an
increased majority. The incumbent president,
Gjorge Ivanov, shares Mr Gruevski's conservative,
nationalist outlook. It is therefore expected that he
will work closely with the prime minister–unlike his
predecessor, Branko Crvenkovski, who had
frequent disagreements with the head of
government.
Relations with Greece are likely to remain in a
state of flux following the change of government
in Greece, after the opposition Panhellenic
Socialist Movement (Pasok) defeated the ruling
conservative party, New Democracy, in the
election on October 4th. The two countries are in
dispute over Macedonia's constitutional name,
with Greece arguing that it implies a territorial
claim to its own northern province, which bears
the same name. Macedonia has been seeking
legal redress from the International Court of
Justice (ICJ) in The Hague for Greece's decision
in 2008 to block its northern neighbour's NATO
accession. Greece has until January 20th 2010 to
respond to Macedonia's detailed case before the
ICJ. The name dispute could also hinder
Macedonia's EU integration, despite the
European Commission's recommendation, made
in October, that the EU should open accession
talks with Macedonia, which has been a
candidate country since 2005. Macedonia is
hoping to get a date from the EU in the next few
months for starting its membership negotiations,
but Greece may decide to block the opening of
the talks, unless a deal is agreed before then over
Macedonia's name. The prospects for a
settlement of the dispute may improve with a new
government in office in Greece. However, past
Pasok governments showed no greater
willingness to compromise on this issue than the
outgoing conservative administration, and
Macedonia may yet have to consider changing its
constitutional name in order to remove the last
remaining obstacle in the way of starting EU
accession talks.
The government has repeatedly said that it does
not wish to conclude a successor programme to
the three-year stand-by arrangement with the IMF
that came to an end in August 2008. The
government's reluctance to turn to the Fund is
based on its determination to push ahead with tax
breaks and capital investment projects to counter
the economic downturn. In contrast, the IMF has
been urging greater fiscal discipline, in view of
Macedonia's external imbalances–although the
Fund's latest report, issued in October, has
sounded a more positive note, calling for a
reduction in the budget deficit only in the medium
term. However, the government may yet come
under pressure to conclude a new arrangement
with the IMF, if the expected improvement in the
external balances does not materialise.
Economic Performance
Recent data indicate that a recovery may now be
under way in Germany and France. However,
estimated that the contraction in real GDP in the
euro zone will still amount to 4.1% in 2009. This,
and a recession of a similar magnitude in Serbia
and other important export markets in south-
eastern Europe, is having a severe impact on the
Macedonian economy. Forecasted that, after a
contraction of an estimated 2.2% in real GDP in
2009, the Macedonian economy will return to
growth in 2010. However, the rebound to be
modest to start with, as growth in private
consumption will be limited by the lingering
impact of the 2009 recession, including increased
unemployment, and government consumption will
be restricted by the need to rein in the budget
deficit. Access to credit is also likely to remain
difficult, as local subsidiaries of foreign-owned
banks continue to be affected by the aftermath of
the global financial crisis. A weak recovery in
Macedonia's euro area and Balkan export
markets is expected to hold back more robust
growth until later in the forecast period. We
forecast that real GDP will increase by 1% in
2010, before accelerating to 3% growth in 2011.
Inflation has fallen sharply since it peaked in mid-
2008, and has turned into deflation since June.
The rapid deceleration has followed a drop in
global oil prices, food price disinflation and, more
recently, a decline in domestic demand. The
NBRM appears determined to maintain the
current exchange-rate regime–under which the
denar is informally pegged to the euro–as part of
its monetary policy strategy in 2010-11. As an
indication of its adherence to the de facto
exchange rate, the bank raised its key repo rate
from 7% to 9% in March 2009 in order to stabilise
the denar. Macedonia has stemmed the recent
sharp decline in foreign reserves with more
borrowing since mid-2009. However, it may yet
need IMF assistance to protect the denar.
Estimated that the current-account deficit will
contract to the equivalent of 9.7% of GDP in 2009,
from a record 13% of GDP in 2008, following
weakening domestic demand and low
international oil prices. Although international
energy and commodity prices will strengthen to
some degree in the forecast period, we forecast
that the recovery in the euro zone will help to
boost Macedonia's exports, and that it will also
contribute to a rise in workers' remittances. Import
demand is expected to remain sluggish, as
private consumption recovers slowly during the
forecast period. We forecast that the annual
current-account deficits will narrow in 2010-11,
averaging the equivalent of 7.7% of GDP. *
* The Economist Intelligence Unit Limited, November 2009
Key Information Contacts
Central Securities Depository www.cdhv.org.mk
Securities & Exchange Commission www.sec.gov.mk
National Bank of the Republic of Macedonia www.nbrm.gov.mk
Ministry of Finance www.fin.gov.mk
REAL GDP
(MKD millions)
CONSUMER PRICES (% CHANGE PA; AV)
(%)
250
9
8
7
6
5
4
3
2
1
0
-1
200
150
100
50
0
2005
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