Page 63 - SE Outlook Regions 2023

statistics office said. Exports grew by an annual 21.3% to €6.9bn in the
first ten months. Imports jumped by 29.3% y/y to €10.1bn.

Most of the exports consisted of precious metal catalysts, ignition wiring
sets and ferronickel. The most significant imported items included
petroleum oil, platinum and platinum alloys, electricity and colloidal
precious metals.

In terms of total external trade volume, North Macedonia's most
important foreign trade partners were Germany, the UK, Greece, Serbia
and Bulgaria. Import coverage by exports was 68.6%.

2.8.3 Inflation and monetary policy

The central bank projected average annual inflation of 14.3% for 2022,
and expects that in 2023 import prices will decrease, which would also
reduce the pressure on domestic inflation. With such expectations the
average inflation rate is expected to be more moderate, amounting to
about 8-9%, depending on the increase in electricity prices on the
regulated market. In the first eleven months of 2022, the inflation was
13.8%.

The central bank said that the average annual inflation in the first
eleven months of 2022 was 13.8%, while about 76% of the growth was
a direct effect of the higher food and energy prices.

For 2024, North Macedonia's inflation is expected to slow significantly
to 2.4% and return to the historical average of 2% in 2025.

North Macedonia's central bank increased the key interest by 0.75 of a
percentage point (pp) to 4.25% in November, after raising it by 0.5pp a
month earlier, due to surging inflation.

The key rate, which also applies to central bank bills, was hiked in the
previous months too, except in August.

The national bank maintains the continuous tightening of monetary
policy using a wider set of monetary instruments.

The International Monetary Fund (IMF) said that inflation is projected at
12.9% on average in 2022. Still high inflation expectations, indexation,
and high nominal wage growth are expected to create some domestic
inflationary pressures in 2023, keeping inflation at 7.1%. Over the
medium term, inflation would gradually decline to around 2% by 2025,
helped by the close link to euro area inflation under the de-facto peg.

The IMF said that additional energy and food price shocks or a
worsening security situation could further increase inflation and weaken
the global growth outlook, and the global tightening in financial
conditions could worsen the financing situation for emerging markets,
as depicted in the adverse scenario. A reemergence of domestic
political instability could hamper the implementation of the authorities’
policy programme and weaken external market financing prospects. On

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