Download MACEDONIA 108502 Monthly Economic Developments March 29

MACEDONIA
Monthly Economic Developments
108502
March 29, 2013
For the first time since 2009, the Macedonian economy was in 2012 back in recession,
contracting by 0.3 percent. The recently published Q4 2012 growth numbers confirmed the
weaker than expected growth outcome for 2012 and prompted the National Bank of the
Republic of Macedonia (NBRM) to revise their 2013 growth outlook down from 2.6 to 2.2
percent. The World Bank growth outlook remains at 1 percent for this year. Weak growth during
2012 was driven by negative growth in the industry sector of 7.4 percent y-o-y, despite relatively
strong growth in construction during the second half of the year of 13.6 percent on average (and
4.6 percent y-o-y). This was largely due to the continued realization of big infrastructure projects
commissioned by the Government. The services sector grew at a steady 2.9 percent y-o-y, led
by financial services. Agriculture growth for 2012 stood at 1.4 percent, thanks to a good Q4
outcome of 2.5 percent.
High frequency indicators for January – February 2013 indicate a slow start of the year.
Industrial production in January 2013 registered a decrease of more than 20 percent on a
monthly basis and was also negative y-o-y at 1.3 percent. Electricity consumption was weak.
However, business tendency surveys for future expectations registered for the first time since
August 2012 an improvement. Average capacity utilization was also up for the first time since
August and stood above 60 percent. Inflationary pressures continued to ease during February
and dropped to 3.5 percent y-o-y.
In the wake of local elections, budget execution during January and February 2013 was
elevated as compared to the same period a year ago. During the first two months expenditures
increased by 6.4 percent, mainly as a result of higher transfers and expenditures for goods and
services, while total revenues decreased by 8.5 percent as compared to January-February
2012. Transfers to local government and social transfers increased by 15.1 percent and 4.6
percent, respectively. Partly as a result of Government’s commitment to clear by end-February
all arrears in the form of outstanding VAT refunds and contractual works performed by
companies, expenditures for goods and services rose by 27.0 percent and net VAT collection
decreased by 38.7 percent compared to the same period in 2012. The budget deficit at end
February 2013 stood at 1.2 percent of projected GDP and exhausted 37.3 percent of the
planned deficit.
Government debt increased by end 2012 to 33.8 percent of GDP up from 27.8 percent in
2011 and rose during January further to 34.3 percent of GDP. During 2012 the increase was
mostly the result of higher domestic borrowing which reached 10.7 percent of GDP (from 4.7
percent in 2011). During the first two months of 2013 external and domestic borrowing equally
contributed to the increased debt level. In January Government contracted a large external loan
from Deutsche Bank in the amount of EUR250 million (backed by the World Bank Public
Expenditure Policy Based Guarantee) and received a EUR38 million World Bank loan (i.e. the
Competitiveness DPL). At the same time Government fully repaid the EUR175 million Eurobond
which came due on January 7, 2013. Since January, Government rolled over all due domestic
debt and issued some additional debt, although tapping into the domestic market on an
increasingly reduced scale. New domestic debt issued during January was EUR68 million and
during February EUR33 million. During March Government only sold bills in the amount required
to roll-over its debt, and at a much smaller amount than subscribed, in an attempt to not crowdout credit to the private sector. Government bills were also issued at a lower interest rate (of 0.3
percentage points) compared to the average rate for 2012 and at increased maturity (up to 1
year).
The financial sector continues to be highly liquid, yet credit to the private sector
decreased in February compared to January 2013 by 0.2 percent. Banks report a lack of
investment projects with most loan requests are for the purpose of refinancing or financing
working capital. This reflects lingering uncertainty about the external environment and growth
prospects and explains the continued flight to government securities. In addition, nonperforming loans (NPLs) are increasing again and reached in February 11.7 percent of total
loans, up from 10.3 percent in December and 10.8 percent in January. The increase is due to
the increase in NPLs of companies by 12.2 percent on a monthly bases and 36.0 percent on a
yearly bases. As a result the number of blocked accounts of legal entities increased by 461 in
February after briefly declining in December and January.
The 2012 yearly Business Census reported an increased number of active companies in
Macedonia (74,424 up from 73,118 in 2011). The Business Census counts all active legal
business entities and individuals which contribute to GDP creation, while a more comprehensive
Business Survey -also performed by the State Statistical Office-- covers only legal business
entities and collects more detailed firm-level data. More than a third of all entities covered by
the census operated in the wholesale and retail trade (including repair) sector. About 11 percent
of companies are in manufacturing. The vast majority of companies (92 percent) are small with
up to 9 employees and only a few companies (0.3 percent) have 250 or more employees.
During 2012 new active business entities were mainly created in sectors that also grew most
during the year, like construction (141) and services (guest and professional services: 298 and
338 respectively). Manufacturing registered 96 less active business entities compared to 2011.
The latest Business Survey of 2011 reported also a dominance of enterprises belonging to the
wholesale and retail sector (46.6 percent of the surveyed 53,645 businesses). They employed
about a third of the counted 330,000 employees and realized more than 40 percent of the total
turnover of MKD920 billion. The second most important business sector was the manufacturing
industry, with a high employment weight of a third of total employees, and a bit less than a third
of total turnover (concentrated in 13.2 percent of all surveyed enterprises).
Government announced in March an increase in the minimum wage for employees in the
textile sector. This increase of about 10 percent will be above the projected 2013 inflation by
NBRM of 3.2 percent. The objective is to increase the living standard of this group of
employees. The minimum wage of employees in all other sectors will remain at the same level
as in 2012.
Figure 1: GDP and Industrial Production
Figure 2: Inflation
Figure 3: Fiscal and CA Balances
Figure 4: Exports, Imports and Reserves