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Boston, MA -- (ReleaseWire) -- 01/03/2014 --Stalled progress on Macedonia's EU accession hopes and lingering ethnic tensions remain major challenges to the county's long-term stability. Moreover, we note that a deteriorating demographic picture could pose severe economic challenges and exacerbate ethnic tensions as Macedonian society grows more heterogeneous over the coming decades.

Improving domestic demand conditions will see imports begin to rise, and more emphasis will be placed on private consumption to drive growth.

The recent shift of Macedonian manufactured exports towards Germany has helped to limit the downtrend in goods export growth and has paved the way for improving trade dynamics in the coming years.

Major Forecast Changes

We have revised up our 2013 real GDP growth forecast from 2.0% to 3.0% and now see economic growth slowing to 2.0% in 2014, from our previous forecast of 1.8% growth.

We are now forecasting a narrowing of the current account deficit from 3.7% of GDP in 2012 to 3.1% in 2013, having previously projected a 3.9% shortfall. We forecast a 3.0% of GDP current account deficit in 2014, down from our previous forecast for a 4.1% shortfall.

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Key Risks To Outlook

We continue to see scope for a moderation in economic growth in H213, which would challenge our assumption that real GDP growth in Macedonia will come in stronger than we had previously assumed. Nevertheless, we note that the more pertinent risk to our outlook is a more abrupt decline in fixed investment growth, which at a time of weak final consumption could lead to a more sudden adjustment in headline growth than the drop from 3.0% to 2.0% that we currently forecast in 2014.

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