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Sebastian Staske

Iran conflict: impact on North Macedonia is relatively moderate

North Macedonia’s economy has got off to a solid start in 2026. However, the Iran conflict is worsening the macroeconomic environment. Rising energy prices are driving up the cost of oil imports in particular. Overall, the conflict poses a risk primarily to the current account and inflation, whilst the effect on growth remains comparatively limited. The IMF forecasts growth of 3.1% for 2026, whilst the National Bank expects 3.5%. These estimates are based on the assumption that the conflict will be short-lived, which appears plausible in light of the recent framework agreement between the US and Iran. Although the impact on the budget has so far been limited, the conflict underlines the need for fiscal consolidation.

  • North Macedonia
NL 04 | April - June 2026
Macroeconomic Analyses and Forecasting
Starting point: global rise in energy prices

According to the IMF, 25 to 30% of the world’s oil and 20% of liquefied natural gas (LNG) are transported through the Strait of Hormuz. The Iran conflict is leading to a reduction in global energy supply and, consequently, higher energy prices. In its reference scenario, the IMF therefore assumes that the price of Brent will rise to an average of USD 82 per barrel in 2026, having stood at USD 68 per barrel in 2025. This assumption is based on the conflict being of short duration. Globally, this price increase leads to higher inflation and lower growth: the inflation forecast has been raised by 0.5 pp and the growth forecast lowered by 0.3 pp.

Energy mix: high share of oil products

As the energy shock is therefore the main impact channel, the energy mix should be examined first in order to analyse the economic impact.

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Oil products account for 45% of the total energy supply and are used primarily in the transport sector. Natural gas accounts for a smaller share of 12% but is important for combined heat and power plants. Both energy sources are imported entirely. A high share of coal, which accounts for around 25% and is predominantly produced domestically, as well as renewable energies, which account for around 19%, mitigate the impact.

Current account: imports rise, export growth slows

The Iran conflict is therefore affecting North Macedonia primarily through higher import costs. Imports of oil products and natural gas together accounted for around 5.1% of GDP in 2025. Assuming that oil products follow the rise in the price of Brent, whilst gas prices remain stable in the short term due to contracts, this results in additional import costs of USD 161 m, or 0.8% of GDP.

The second channel of impact is the indirect effect via export demand. Industry accounts for around 20% of GDP and is closely integrated into European value chains, particularly in the automotive sector. The EU is the main export market: in 2025, 76% of goods exports went to the EU, 36% of which were bound for Germany. If demand from the EU falls, production will therefore decline. Growth forecasts for the EU have recently been revised downwards: growth of just 1.1% is expected for the EU in 2026 (-0.3 pp compared with the previous forecast), and 0.6% for Germany (-0.7 pp).

Consequently, trade in goods is deteriorating on both the import and export sides. Accordingly, the forecast for the current account deficit has been revised significantly downwards. In 2025, it stood at -4.4% of GDP. For 2026, the IMF expects a deficit of -5.0% of GDP in its latest forecast from April 2026, 1.9 pp more than in its previous forecast from October 2025. In its May forecast, the National Bank (NBRNM) anticipates a deficit of 5.7% of GDP, up from 4.1% in its previous forecast in February. Like the IMF, the NBRNM also assumes the conflict will be short-lived. The services surplus of around 6% of GDP and remittances of around 12% of GDP remain important counterbalances.

Inflation: the most visible effect of the conflict

The most obvious immediate impact of the conflict is evident in inflation. In May 2026, it stood at 4.8% yoy. The rise in prices in the transport sector was particularly striking, at 11.0%. Food prices rose by 4.7%. A look at the composition of the consumer price index basket highlights the significance of this trend: food and drink account for around 40%, energy for around 10% and transport for 8%.

Accordingly, inflation forecasts have been revised significantly upwards. The IMF now expects inflation to reach 4.5% in 2026, 1.5 pp higher than previously forecast. The National Bank has also raised its forecast by 1.5 pp to 4.0%. This is particularly relevant for economic policy because the denar is de facto pegged to the euro. The exchange rate regime has proved to be an anchor of stability, but this presupposes that inflation does not remain significantly above that of the euro area on a sustained basis. The foreign exchange reserves of EUR 5.2bn, equivalent to around five months of import cover, provide an important buffer in this regard.

GDP: growth could be up to 0.5 pp lower

The Iran conflict is therefore affecting growth primarily through two channels: higher prices and weaker external demand. Higher energy and transport costs not only make imports more expensive, they also weaken households’ purchasing power. Furthermore, they can weigh on investment decisions. Real growth has remained robust so far despite the challenging environment but is losing momentum. Following 3.5% in 2025, growth stood at 3.1% in the first quarter of 2026. The IMF’s forecast for full-year 2026 is also 3.1% and has been revised down by just 0.1 pp compared with the forecast made before the conflict. Although the National Bank expects higher growth of 3.5%, it has revised its forecast downwards more significantly, by 0.5 pp.

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Fiscal policy: consolidation remains necessary

As was the case during the 2022 energy crisis, the government temporarily reduced VAT and excise duties on fuel and diesel. As these measures have since expired, the immediate fiscal impact remains limited. Nevertheless, the conflict highlights the limited fiscal buffers: since the COVID-19 pandemic, the budget deficit has consistently exceeded the fiscal rule of 3% of GDP. At the same time, the public debt ratio exceeds the fiscal rule of 60% of GDP. In 2025, the deficit stood at 3.9%. The government is targeting 3.5% for 2026. The IMF supports this target but emphasises the need for further reforms to reduce the deficit. In its forecast, it therefore projects a figure of 4.2%. Although the fiscal challenges exist independently of the Iran conflict, the latter underlines the need for further consolidation to strengthen debt sustainability and build up fiscal buffers against shocks. This would also be relevant should the Iran conflict prove to be protracted.

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Two Eurobond issues totalling EUR 1.0 bn had already taken place in January, shortly before the start of the Iran conflict. North Macedonia has thus avoided having to refinance in an environment of rising interest rates.

Outlook

The framework agreement recently reached between the US and Iran suggests that a near-term end to the conflict is possible. In that case, it would last only slightly longer than originally expected. The Iran conflict would then have only limited economic implications for North Macedonia. The government believes that the country is better positioned than it was during the 2022 energy crisis. However, a protracted conflict would increase the risks to import costs, inflation and export demand from the EU. More significant fiscal effects would also be possible. From an economic policy perspective, it is therefore crucial to monitor price developments closely and to remain committed to the necessary fiscal consolidation.

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This newsletter is based on the policy briefing “Economic implications of the Iran conflict for North Macedonia” and the 4th edition of our Economic Outlook North Macedonia.

 

Sources

About the German Economic Team

The German Economic Team is financed by the Federal Ministry for Economic Affairs and Energy (BMWE). Berlin Economics is commissioned with the project implementation.