The latest European Commission (EC) report for 2025 sends a clear message to the Macedonian authorities: the economy is growing, but without real reforms. Despite a real GDP growth of 2.8%, public spending, an inefficient public sector, and slow fiscal consolidation are blocking progress.

“Growth without reforms is not sustainable,” Brussels warns.

Fiscal deficit and growth without a foundation

In 2024, real GDP growth accelerated, driven by private consumption and public investments, but the fiscal deficit exceeded planned levels due to increases in wages and pensions. The European Commission warns that such spending “delays the fiscal consolidation and compliance with budgetary rules”.

Although a Budget Law was adopted, its full implementation has been postponed until 2026, prolonging the establishment of a stable and predictable fiscal framework.

“Public spending is growing faster than the economy, and weak realization of capital investments limits the country’s long-term competitiveness”, European Commission, 2025 Report.

Public sector that spends, private sector that waits

The EC assesses that the public sector remains overly large, and the effects of its spending are not reflected in productivity. Meanwhile, the execution of capital expenditures and the management of public investments remain weak. The government must improve the monitoring and coordination of projects to avoid “paper investments”.

Although the banking sector remains stable, the formalization of the informal economy is stagnating, undermining the tax base and creating unfair competition.

Problems remain

According to the EC, unemployment is decreasing, but structural problems are deep — low female labor force participation, youth emigration, and a serious shortage of skilled labor.

The report praises the adoption of the new Law on vocational education and training, but calls for faster implementation and increased funding for education reforms.

“The labor market has improved, but the economy still does not create enough productive jobs”.

Inflation, wages, and real purchasing power

After the stabilization of prices in the first half of 2024, inflation accelerated again from September, while public sector wage growth was not supported by productivity. The EC points out that demand is the main driver of growth, not exports and productive investments — a model that is “sustainable in the short term, but risky in the long term”.

Credit growth without reforms

The central bank has begun a cautious easing of monetary policy, and the banking sector remains “resilient and well-capitalized.” However, Brussels urges caution regarding the risks of excessive credit growth amid weak institutional oversight.

European Commission recommendations to Skopje

The EC gives a clear set of recommendations for the economic policy in 2026: Implement the organic budget law and fiscal rules. Reduce current public spending and improve investment management. Formalize the informal economy and strengthen inspection oversight. Increase productivity through education, digitalization, and innovation.

Economy at a crossroads

The European Commission views North Macedonia as an economy with good potential, but without a clear direction. The country has a “good level of preparedness for a market economy,” but limited progress in key reforms.

“Without fiscal discipline, transparent spending, and institutional accountability, growth will remain statistical, but not real”, is the message from the European Commission Report.

KEY ECONOMIC FIGURES 2024–2025

The EC Economic Report for 2025 shows that North Macedonia is not in crisis, but in stagnation. Growth is present, but without structural reforms — it remains “growth on paper”. Unless the spending model changes and productivity is strengthened, the country will continue to live in a parallel economic cycle — growth on paper, stagnation in reality.

Destan Jonuzi

Translated by N. Cvetkovska with support from OpenAI (ChatGPT)