February 13 (SeeNews) - The European Commission said on Monday it confirmed its previous projection that Macedonia's economy will expand by 3.2% in 2017, with domestic demand to be the main growth driver.
"The biggest contribution is expected from domestic demand, with private consumption spending remaining robust, as it benefits from only moderately rising consumer prices and further improvement in the labour market," the Commission said in its Winter 2017 Economic Forecast.
These trends are expected to continue in 2018, when gross domestic product (GDP) growth is projected to accelerate to 3.6%.
The Commission also predicted an improvement in the labour market, with unemployment rate expected to fall further to 23.2% and 22.0% in 2017 and 2018, respectively.
In the third quarter of 2016, Macedonia's jobless rate fell to 23.4%, from 24.0% in the previous quarter due to the government's measures aimed at opening new jobs but also by the labour force decline prompted by emigration and unfavourable demographics.
"The expected economic strengthening is put at risk by continued political uncertainty after the December elections which could dampen private investment growth and stifle household consumption," the Commission warned.
If the political crisis continues, it could lead to moving bank deposits abroad, which would put pressure on foreign reserves, the Commission added. Political uncertainty could cause decline in foreign investments and remmitances, while fiscal revenues might drop due to rising debt levels.
In the first three quarters of 2016 the pace of economic growth slowed down to 2.7%, compared to 3.1% in the like period a year earlier. The slowdown was caused mainly by the protracted political crisis which made private companies hold back on investment and kept credit growth flattish.
Macedonia ended 2016 with an average deflation of 0.2% due to lower food and energy prices, the Commission recalled.
The annual fiscal deficit, which was below the government's target and below the 2015 level came largely on the back of lower-than-planned capital expenditure. Capital expenditure in 2016 was equal to 76% of year's plan.
Economic growth of 3% is projected in Macedonia's 2017 budget approved by the parliament in October.