September 22, 2017 / 9:42 AM / a year ago

Macedonia's political crisis hitting growth: central bank governor

SARAJEVO (Reuters) - A prolonged political crisis has gravely hit Macedonia’s economy and it will hardly achieve any growth this year after it shrank in the first half, the governor of Macedonia’s central bank said on Friday.

“Our forecast of 2.5 percent growth from April was obviously too optimistic, the political crisis took a bigger toll than we initially thought,” Bogov told Reuters in an interview. “Having in mind the outcome of the first half of the year which was -0.9, I would be glad if we end this year with positive economic growth.”

The Balkan country’s economy grew by 2.4 percent last year but national output fell 1.9 percent in the second quarter of this year, the first decline since 2012.

Speaking at the sidelines of a banking conference in Sarajevo, Bogov said the economy could rebound next year if the political situation stabilizes.

“If we have full political stability and economic policies from the new government in place, we can expect that growth will gradually return to the trend that we had before entering into the political crisis in 2015,” Bogov said in an interview.

A new Macedonian government was elected in May after more than two years of political turmoil caused by a wiretapping scandal that brought down the previous ruling nationalist VMRO-DPMNE party bloc and halted the country’s path toward joining the European Union.

Bogov said he expected the government to continue with fiscal consolidation to stabilize the budget deficit which is estimated at around 3 percent for this year.

He also said the bank did not see need for additional adjustment of interest rates which were at a historical low of 3.25 percent but will monitor closely the situation with external sector and fiscal policies over the next years.

A general view in Macedonia is that “we don’t need an arrangement with the International Monetary Fund because we don’t have balance of payments problems”, Bogov said, but added that the final decision was up to the government.

Inflation is expected to reach 1.3 percent this year, after three years of deflation, and is seen at 2 percent in 2018, he said.

Reporting by Daria Sito-Sucic; Editing by

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