European Commission: Grey economy and undeclared work are long-term obstacles for business in North Macedonia
The Commission finds growth driven by consumption and government demand, highlights a large grey economy and calls for fiscal consolidation and infrastructure investment.
The European Commission warns that North Macedonia's recent economic expansion is being driven primarily by domestic demand rather than stronger productivity, a pattern that could undermine the durability of growth, according to its latest country report.
While the Commission describes the growth as solid, it points out that household spending, credit expansion and state-supported demand are the main engines—rather than gains in productivity. "Growth has been driven mainly by consumption, credit expansion and demand supported by the government, rather than through productivity. This raises concerns about the sustainability of growth," the report says.
Structural weaknesses and informal employment
The report flags the grey economy and undeclared work as long-term obstacles for businesses. It notes that an action plan to formalize informal activity has been delayed, and calls attention to the scale of the problem: "Competition is distorted by the large informal economy, which, according to some estimates, amounts to around 38% of GDP. Informal employment made up 14.5% of total employment in the second quarter of 2026, according to the State Statistical Office, an increase of 0.3 percentage points compared with the same period last year," the Commission states.
Despite a falling unemployment rate, the labour market still faces structural challenges linked to high emigration, a mismatch between workers' skills and business needs, and outdated higher education programmes.
The Commission also recommends stronger fiscal consolidation. That would require cutting budgetary spending and, among other measures, limiting the growth of pensions and wages in the public sector.
On infrastructure, the report underlines the need for sizeable investments in transport and the energy system, which it judges to be worn-out. At the same time, it acknowledges positive steps: North Macedonia is actively committed to implementing the new Western Balkans Growth Plan, based on four pillars for gradual EU integration—single market, regional economic integration, accelerating core reforms and increased financial support.
Photo: press material from the event
