Decelerating inflation next year, in the medium term, expected to rebound to 2%

Skopje, 25 November 2022

The Governor Anita Angelovska Bezhoska presented the most recent macroeconomic forecasts of the National Bank to the diplomatic corps and the representatives of the international institutions. The event, organized regularly after each new round of macroeconomic forecasts of the National Bank, was attended by representatives of the International Monetary Fund (IMF), the United Nations (UN), the United Nations Development Programme (UNDP), the European Bank for Reconstruction and Development (EBRD), the Delegation of the European Union, as well as of the diplomatic representative offices of Albania, Bulgaria, Germany, Greece, China, Poland, Romania, Slovakia, Slovenia, Hungary, France, the Netherlands, Croatia, Switzerland, Sweden and Spain.

At the presentation, it was pointed out that the disturbances of the supply due to the war in Ukraine, the disruptions in global supply chains and logistics, and higher production costs driven by higher energy prices cause growth in food prices on world markets. Such price movements on world markets were transmitted to the domestic economy, given that we are extremely open economy (140% of GDP). Considering the fact that the food and energy prices in our country made up three quarters of the total inflation this year, the National Bank revised the inflation for this year upward at 14.3%.

However, as the Governor Angelovska Bezhoska pointed out at the presentation, the most recent forecasts for the developments in the world markets indicate gradual easing of price pressures from import prices, so the oil and food prices are expected to drop during the coming year. Consequently, as well as given the announced government measures for subsidizing electricity price for the food industry and gradual tightening of the monetary policy, for 2023 inflation deceleration to around 8%-9% is forecast annually. In the medium term, the inflation is expected to stabilize and reduce to the historical rates of around 2%, i.e. 2.4% and 2% in 2024 and 2025. By that time, the effects of the current growth of prices of energy and primary food products in the world market are expected to be entirely exhausted, assuming that there will be no new shocks on the supply side.

The Governor pointed out that the National Bank started tightening the monetary policy since last year through series of instruments, to stabilize the inflation expectations, primarily through intervention on the foreign exchange market which optimally regulates the liquidity in circulation This year, the central bank continued with interest rate interventions, therefore in addition to the policy rate, there was also an increase in the interest rates on overnight loans, overnight and seven-day deposits. There was also a response through the reserve requirement, with measures that should positively affect the propensity to save in domestic currency, and the measure to introduce a countercyclical buffer was also set forth, as a preventive measure to maintain financial stability.

At the presentation, it was pointed out that the unfavorable external environment, the visible effects of the crises on part of the domestic industrial facilities amid increased production costs, mainly related to energy, as well as reduced purchasing power of households, are factors that affect the downward correction to growth in 2022 and 2023. The expectations for the growth of the Macedonian economy is that it will slow down this year and the next, as is also expected for the global economy. According to the National Bank baseline scenario, the growth rates equaled 2.3% and 2.6% for 2022 and 2023, while according to the alternative scenario interest rates of 2% and 1.8% are expected for this and the next year respectively. In the medium term, economic growth is expected to accelerate to 3.6% in 2024 and 4% in 2025.

The banking sector is expected to continue to provide support to the economy, thus further growth in lending is forecast in the coming period, at a more moderate pace though. In 2022, the growth of loans is expected to equal 9.2% on an annual basis, which suggests certain deceleration of lending in the second half of the year, influenced by the expectations for weaker economic activity, increased uncertainty, moderate growth of the deposit base and certain effect of the National Bank measures through tightened monetary policy. Credit growth will continue to be supported by the growth of deposits as the main source of financing. The growth of deposits continued and is expected to reach 3.9% by the end of 2022, thanks to the measures undertaken by the National Bank. In the medium term, with intensification of the economic activity, deposit growth of around 8% is expected in 2024 and 2025.