According to the World Bank’s latest Regular Economic Report (RER), the GDP growth in North Macedonia is projected at -0.4 percent in 2020, 3.6 percent in 2021 and 3.5 percent in 2022.
“The COVID-19 pandemic is hitting North Macedonia hard, with lockdowns, disrupted supply chains, and a prolonged, adverse epidemiological situation darkening an already dim economic outlook in the country. As a result, the country is coping with its deepest recession in two decades affecting all sectors of the economy and economic activity is forecast to decline by 4.1 percent in 2020,” World Bank Country Manager for North Macedonia Massimiliano Paolucci said at Thursday’s online presentation of Western Balkans Regular Economic Report No.18.
North Macedonia is not alone, with all countries in the Western Balkans facing recession and regional growth now forecast to contract by 4.8 percent in 2020, 1.7 percentage points lower than forecast in April. A second, stronger wave of the pandemic since mid-June is delaying economic recovery in the region. Travel restrictions and social distancing measures have also depressed growth in those countries more reliant on tourism, reads the report.
The growth in Montenegro would fall by 12.4 percent in 2020, followed by 8.8 percent in Kosovo, 8.4 percent in Albania, 3.2 percent in Bosnia and Herzegovina and 3 percent in Serbia. The growth in Montenegro would fall by 6.9 percent in 2021 followed by 5 percent in Albania, 3.7 percent in Kosovo, 3 percent in Bosnia and Herzegovina and 2.9 percent in Serbia.
Although government support in North Macedonia has cushioned the impact of the crisis on the labor market, the unemployment rate increased, to 16.7 percent, for the first time since 2011, as 17,690 people lost their jobs in the second quarter of the year. Government support programs also helped alleviate some impact on workers and firms, but fiscal space narrowed, as debt exceeded 60 percent of GDP. With the end of the economic crisis uncertain, pressure on labor markets and incomes is likely to continue for some months, notes the report.
“The near-term outlook for North Macedonia is positive, but heightened, downside risks remain. The containment phase has not yet finished and a protracted pandemic, coupled with persisting social distancing measures, may further delay a return to recovery,” Paolucci said.
“Going forward, economic and social measures to remedy the crisis will be the main priority, but it will also be important to continue with necessary medium-term fiscal, competition, environment, and governance reforms to ensure a sustainable recovery and EU accession,” he added.
“If new restrictive measures are introduced, we assume that the shock to consumers and companies would be less, because in recent months they had time to adjust and the overall effect would be less than in April and May,” World Bank expert Bojan Shimbov said.
“COVID-19 crisis has an impact on changing consumer habits, e-commerce, work from home, communication from home and all this has an impact on the behavior of consumers and companies that need to adapt,” Shimbov said.
He noted that a research was carried out by the World Bank on the potential of companies for new products and processes and the results show that there is insufficient adaptability of companies in the Western Balkans.
Thirty percent of the companies said they had introduced new business processes, but there are insufficient number of companies that show adaptability to the new reality. Also, the digitalization that would enable e-commerce in North Macedonia is 60 percent, and in other countries it is lower.
According to the World Bank, the positive thing is that large part of companies in North Macedonia, Serbia and Bosnia and Herzegovina stated that they have introduced new products and services in the last three years that would help them adapt to the new reality.
By 2022, the total output loss due to the crisis is projected to be fully recovered. But the crisis also offers the opportunity to make growth more resilient in the future by implementing key structural reforms. These include more effective public spending and better management of public investments; rebuilding fiscal space by heightening tax compliance, greater efficiency in spending, and new fiscal instruments, such as green taxes and digital taxation; building strong, independent, and accountable institutions; and committed adherence to the rule of law.
Apart from improved health systems and robust social protection mechanisms, policymakers in the region will need to take measures to enhance human capital, build stronger institutions and strengthen the rule of law. The unfortunate situation of needing to spend more in a time of declining revenues puts additional pressure on governments in the region to prioritize fiscal sustainability, including through improving public spending and strengthening tax compliance.
The World Bank said in a report that focus should be placed on efficiency and public investment management, to strengthen competitiveness, and state aid to restructure and distribute it equally, and not as before in certain sectors and companies.
The report acknowledges that the speed of recovery, in the short term, will depend on how the pandemic evolves, the approval of a vaccine that allows for the normalization of economic activity, and a sustained recovery for the region’s main trading partners, especially the European Union (EU).