Economic forecast for North Macedonia

17.11.2025

Economic growth in North Macedonia is projected to accelerate gradually over the forecast horizon, driven by investment and robust private consumption. Real GDP growth is forecast at 3.2% in 2025 and 3.3% in 2026 and 2027, supported by large public infrastructure works and improving sentiment for private investment. Inflation is expected to be higher in 2025 due to domestic pressures, but to decline towards the central bank’s 2% target by 2027. The general government deficit is projected to remain above 3% of GDP throughout the period, while the gross public debt ratio is expected to increase to around 55% of GDP by 2027. 

Investment to drive growth 

Economic activity in the first half of 2025 was driven mainly by investment and private consumption, while public consumption was flat after strong increases in 2024. Household consumption picked up, supported by rising real disposable incomes due to strong pension and wage growth, credit expansion and easing inflation. Net exports continued to weigh on growth, though trade performance was stronger than expected in the first half of 2025. Over the forecast horizon, private consumption is expected to remain robust, though income growth is projected to moderate, while gross investment is likely to be the main contributor to growth. Large public works on Road Corridors 8 and 10d began in 2025, with their growth impact expected to peak in 2027, while private investment is supported by improved sentiment and subsidised funding through external loan facilities and credit lines. The negative contribution from the external balance is projected to diminish as export growth normalises and imports rise to meet domestic demand. 

Inflation driven by domestic factors 

Headline inflation has been rebounding since September 2024, initially driven by higher food prices and temporarily dampened by government price controls in early 2025. As these controls expired, inflation in 2025 became increasingly driven by domestic factors such as wage growth and credit expansion, reflected in higher inflation excluding energy and food. Inflation is projected to remain higher in 2025 than previously expected, but to decline towards the central bank’s 2% target by 2027, supported by a more restrictive fiscal stance and easing domestic pressures. The central bank lowered the key policy rate in several steps from late 2024 into early 2025. 

High inactivity and labour shortage put pressure on wages 

Despite employment growth and falling unemployment, inactivity among the working-age population remains high, contributing to labour shortages and wage pressures. After strong nominal wage growth in 2024, wage growth moderated somewhat in the first half of 2025. Employment growth is expected to remain subdued until structural challenges such as low labour market participation are addressed, while unemployment is projected to continue declining gradually over the forecast horizon. 

Fiscal consolidation plans remain uncertain 

Despite strong revenue performance, a budget revision was required in 2025 as current spending increased above initial plans in an election year. The deficit is projected to decline gradually over the forecast horizon, driven by more restrained wage and pension increases, focused social spending and robust revenues in line with growth. However, meeting the 3% of GDP deficit rule by 2027 appears unlikely without clearly specified consolidation measures, and high gross financing needs persist, including a major Eurobond repayment due in mid-2026. 

Risks are mainly on the downside 

Downside risks include weaker domestic demand if inflation flares up again through sustained wage pressures or fiscal slippages, and possible implementation problems for major infrastructure works. Upside risks relate to faster reform implementation under the EU Growth Plan, which could improve productivity and growth prospects. 

Source: European Commission. European Economic Forecast, Autumn 2025.