Unleashing Potential: Structural Reforms for Boosting Long-Term Growth

This paper assesses North Macedonia’s long-term growth prospects and the potential output gains from structural reforms. Potential growth is estimated at 2.6–2.9 percent in 2025 using univariate filters and semi-structural models estimated with a Kalman filter, with results pointing to a small positive output gap. Benchmarking against EU and U.S. frontiers highlights sizable gaps in labor market outcomes, the business environment, and governance. Simulations suggest that closing half of the gap relative to CESEE peers could raise GDP by about 14 percent over five years. The paper discusses reform priorities and implementation considerations to support faster income convergence.