Macedonia and the Euro-zone Debt Crisis

1
Macedonia and the Euro-zone Debt Crisis

• (Small and Open Hostages of Uncertain
  prospects?)
• Ana Mitreska
• National bank of the Republic of Macedonia
• Athens May, 2012

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Small and Open and Highly Exposed (hostages of
uncertain prospects?)

• The resumption of the European debt crisis
  brought us to the starting point once again!
• The intensity of the spill over effects lower,
  but the agony prolonged
• Transmission channels well known
• Sound initial conditions prior to the global
  crisis still in place...
• ...but strong external and internal impulses
  needed to built growth model

3
In the midstream of the crisis

• Scrutinizing the impact through main
  transmission channels
• Real channels of transmission weaker impulses
  through foreign demand...

4
In the midstream of the crisis

• Scrutinizing the impact through main
  transmission channels
• ...impacting domestic and export demand and
  bringing to a standstill the growth...
• ...not allowing the economy to hit the potential
  ...
• ...implying sluggish recovery of the labour
  market

5
In the midstream of the crisis
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In the midstream of the crisis

• Scrutinizing the impact through main
  transmission channels
• The outcome already anticipated, with high
  exposure of the trade to Euro zone countries

7
In the midstream of the crisis

• Scrutinizing the impact through main
  transmission channels
• Financial channels of transmission
  multidimensional
• The banking sector low financial integration,
  stable and well capitalised...
• ...but confidence factor brought the lacklustre
  feature of the credit market

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In the midstream of the crisis
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In the midstream of the crisis

• The banking sector, assessed to be resilient to
  shocks arising out of the ongoing crisis...
• despite the large share of EU capital within the
  total banking capital

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In the midstream of the crisis

• Scrutinizing the impact through main
  transmission channels
• Financial channels of transmission
  multidimensional
• Capital inflows Flight to Quality and Home
  Bias yielded into a sharp slowdown in capital
  inflows at the onset of the global crisis
• Yet, capital flows resumed, providing impetus to
  economy ...
• ...and despite the ongoing debt crisis in the
  Euro zone, they continued to penetrate into the
  economy...
• ...although at a more moderate pace compared to
  prior to the crisis

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In the midstream of the crisis

• Scrutinizing the impact through main transmission
  channels
• Financial channels of transmission
  multidimensional
• The Euro crisis shivered financial markets again
• Macedonia with low integration on the
  international capital markets...
• ...yet, increased risk aversion, lead to higher
  risk premium and possible limited future access
  to external funding of the private and public
  sector

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Policy Setup

• Looser Monetary policy, amidst
• negative output gap
• contained inflationary pressures
• no large external disequilibria
• Fiscal policy prudent
• with low deficit and public debt
• ability to attain external financing at
  concessional terms in 2011, despite rising
  turbulences on international market...
• ...but prospects might be worrisome, as economy
  recovers slowly and access to financing becomes
  more difficult

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Policy Setup
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Policy Setup
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The old Conclusion

• Recent crisis testing ground for the
  resilience of the economy
• The crisis has been weathered well, as no
  excessive imbalances existed prior to it
• Macro-policies remained focused during the
  crisis, providing stable and benign environment
• Main challenges ahead, same as before the crisis
• Augmenting stability with structural reforms
• Diversifying the export structure
• Attracting new foreign investments
• Moving towards sustainable external position

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New insights and Conclusion

• The protracted Euro crisis labeled us as a
  hostage of its uncertain recovery...
• ...again, it brought to a halt the recovery
  process and yielded into a very moderate
  scenario for the economy as a whole in the next
  two years...
• ...posing future policy challenges in the fiscal
  area .
• Yet, there are few sparks, making the initial
  conditions slightly to differ compared to the
  very beginning of the crisis
• the protracted Euro crisis, amidst uneven global
  recovery, pressed for new trade directions
• the economy started to feel positive spill over
  effects from FDI newcomers structural change of
  the trade structure
• low imbalances preceding the crisis and prudent
  policy stances helped , capital inflows to resume
  faster, with non-EU investments announced to
  enter the economy

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New export destinations and more diversified
export structure(in of total export)
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New export destinations and more diversified
export structure
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New insights and Conclusion

• The Euro zone is our natural anchor...hence,
  inevitably changes in its economic cycle pose
  direct and indirect consequences
• Yet the crisis in progress demonstrated the need
  not to put all eggs in the same basket
• It prompted the need to discover alternate export
  destinations and to make efforts to diversify the
  FDI country of origin
• It revalidate the need for sound fundamentals and
  policies, as a prerequisite for stronger
  resilience to crisis and faster exit out of the
  gloomy outlook

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• THANK YOU FOR YOUR ATTENTION
• http//www.nbrm.gov.mk
• MitreskaA_at_nbrm.gov.mk