North Macedonia

Growth driven by investment

Growth is set to stay moderate in 2025, as in 2026, ranking below that of neighbouring Balkan countries, but nonetheless supported by a high level of public investment (10% of GDP). To finance infrastructure projects related to Corridors 8 and 10d, the government is mobilising significant amounts of European funding: EUR 700 million by 2026 (Global Gateway, EIB, WBIF, IPA III) and a sovereign loan of EUR 110 million from the EBRD for both road and rail infrastructure. These contributions are being rounded out by bilateral financing: a EUR 1 billion Hungarian loan funded by Chinese banks and agreed at the end of 2024 to fund logistics and transport projects, as well as a strategic agreement with the United Kingdom in May 2025 worth GBP 6 billion to notably cover the rail corridor 10 and health infrastructure projects. The projects are expected to have a direct impact on the activity of the construction, building materials and engineering sectors, while supporting employment in regions durably affected by high unemployment rates. Corridor 8, which connects Bulgaria to Albania via North Macedonia, is part of a regional integration strategy aligned with the EU’s Western Balkans connectivity strategy. As such, North Macedonia is the first country to receive pre-financing from the EU’s new Growth Plan, with EUR 52.2 million disbursed in the spring of 2025.

Household consumption (69% of GDP) continues to support growth amid steadily rising nominal wages, particularly in the public sector and services. Real income has recovered since the end of 2024, supported by an increase in the minimum wage (+8% in April 2025) and an exceptional pension adjustment (+20% over the whole of 2024). Nevertheless, inflation remains high (4.5% in June 2025), despite government measures to control food prices. So far, the Central Bank of North Macedonia has opted for a cautious approach when handling its monetary easing cycle and has lowered its rates more slowly than the European Central Bank (ECB). However, inflationary pressures are expected to gradually ease by the end of 2025, paving the way for improved monetary conditions in 2026. This more favourable environment should stimulate private investment from households and businesses alike.

Industrial activity (25% of GDP) is concentrated in export-oriented Special Economic Zones specialised in assembling automotive components, electrical wiring and electronics. It is highly exposed to European demand. Germany alone accounts for over 40% of total exports, mainly in the automotive sector. Trade uncertainty remains high, particularly regarding the US tariff question. As a result, export dynamics are expected to remain subject to exogenous factors, and their contribution to growth will likely be limited in 2025. Nevertheless, they could regain momentum in 2026 against the backdrop of industrial recovery in Germany.

Twin deficits under pressure

The budget deficit will remain wide in 2025-2026 due to limited tax revenues, affected both by the size of the informal economy and by a low tax rate (10%). Revenues are expected to improve only marginally, while the government remains squeezed by high current expenditures, particularly due to rising public sector wages and pensions, which crimps fiscal headroom. Despite the new government's resolve to reduce the deficit, targets are out of step with the legal threshold (3%): the public deficit is expected to be around 4.5% of GDP in 2025, with little room for downward adjustment in 2026. The main sticking point is the growing debt amortization burden, 60% of which is denominated in euro. However, the euro peg and the fact that 45% is owed to bilateral and multilateral creditors mitigate the risk, which is considered moderate by the IMF. A EUR 700 million eurobond will mature in 2026, representing nearly 7% of GDP. The ability to seek refinancing on the markets or a possible partial buyback as early as 2025 will be a key test of the country’s fiscal credibility and capacity to access external financing. In the short term, foreign exchange reserves (covering more than four months of imports) and the ECB’s repo line provide sufficient coverage. But the maintenance of external stability increasingly depends on conditional commitments: delays in delivering the reforms promised to Brussels or any internal political tension could prompt creditors to reassess their position.

On the external front, with a structural trade deficit equivalent to nearly 20% of GDP, the current account will remain in deficit despite expatriate remittances inflows (15% of GDP). Imports of equipment and energy remain strong, but exports are struggling to take off amid a sluggish European context. In 2026, however, a positive effect is expected from a rebound in German industrial demand which could revive order books in the automotive and electronics sectors, thereby limiting any worsening of the trade deficit. The current account deficit is mainly financed by foreign direct investment (FDI).

Political stability nonetheless marked by uncertainty over the European agenda

The government formed after the May 2024 elections is based on a coalition dominated by VMRO-DPMNE, a right-wing nationalist party that holds 58 out of 120 seats. It is supported by two partners: the ZNAM party, a new center-left formation with nationalist overtones, and the Albanian coalition Vlen, which groups together several small parties representing the Albanian minority. Together, the coalition controls 75 seats, providing a comfortable majority. Under this configuration, the executive has sufficient parliamentary leeway to ensure short-term political stability. No national elections are scheduled before the legislative elections scheduled for May 2028, and the government is expected to complete its term of office without major institutional challenges.

This stability does not, however, guarantee rapid progress on the European front. VMRO-DPMNE’s refusal to enact the constitutional reforms required by Sofia to recognise the Bulgarian minority is blocking the formal opening of EU accession negotiation chapters. The freeze could extend beyond 2025 if internal political compromise fails to be reached. The risk is a slowdown in the pace of reforms and a loss of momentum in regulatory alignment, which could delay access to conditional funding under the EU Growth Plan for the Balkans. Moreover, any deterioration in the areas of the rule of law, judicial independence, or the treatment of checks and balances could jeopardise the country’s European trajectory, with a direct impact on investor confidence and international relations.

Last updated: July 2025