WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

Economic growth in the first quarter was weaker than anticipated. Despite robust fiscal support ahead of the elections and an increase in real wages, GDP grew by only 1.2% year on year. While there were improvements in household consumption, government consumption and gross investment, the overall economic performance was dragged down by a significant decline in exports, which was linked to a sharp drop in agricultural production. Inflation accelerated to 4.5% in May, following the government’s removal of price controls. Consequently – and contrary to our previous expectations – the central bank decided not to cut its interest rate in June, thus placing additional pressure on the economy. For all these reasons, we have revised our GDP forecast for 2024 down to 2% (-0.2 percentage points). Despite a decisive victory in the May elections, the new ruling party, VMRO-DPMNE, has been slow to form a government – possibly in order to avoid taking difficult decisions immediately. It is clear that the government coalition will enjoy a comfortable parliamentary majority; and while there are high hopes of change, no significant alteration in economic policies is to be expected, since the two major parties in the country adhere to similar economic ideologies. Optimism is being further dampened by the new ruling majority’s first move: a reorganisation of ministries that will see their number rise from 16 to 20. The new leadership of the country is also making waves internationally: both the newly elected president and the incoming prime minister have repeatedly refused to use the country’s constitutional name, sparking criticism from Greece and EU officials.