Jointly with several countries in the region, we were positioned in the group of efficiency enhancers, meaning that reforms must be intensified to increase the growth efficiency and quality. Increasing the technological readiness was one of the identified priorities. Thus, in the last decade, the Macedonian productivity level has been staggering to around 40% of the level of advanced economies, such as German economy. This clearly points that if we want to grow at stronger pace and in a more sustainable, green and inclusive way, we need to continue intensively addressing the structural hurdles for the key long-term determinants of the growth: labour, capital and productivity. Let me focus on productivity. At this point, I think I can bring in the highlight of the latest Transition Report, i.e., innovation and digitalisation of the economies. The adoption of digital technologies can unleash productivity revival and possibly counteract some forces that act as drag on growth, such as adverse demographic and emigration trends that dampen the labour supply. What is the pace of digitalization of the Macedonian Economy? The new EBRD digitalization index points to a progress in both segments that are captured by the index – first, the preconditions for the use of digital technologies (digital infrastructure, skills, regulation, provision of government services), and second, the actual use of digital technologies by individuals and companies. The progress is particularly visible in the area of regulation and provision of government services, where score has more than doubled.
The economy is still below the pre–pandemic level, and even more importantly, the growth outlook is under new threat in the midstream of the recent upheavals in Ukraine. Subsequent shocks and the need to respond in crisis management mode increase the risk of distancing from structural policies that provide impetus to a faster transition and more productive growth. However, growth decomposition exercise reveals that even before the health crisis, the growth of the Macedonian economy, similar to the growth of other CESEE transition economies, was not predominantly driven by innovative and efficient sources. The average growth in the decade preceding the pandemics gravitated around 2.5%, somewhat above the CESEE average, with the contribution of total factor productivity (TFP), as a measure of economic efficiency and innovation, being relatively marginal. Although two thirds of growth dynamic was capital driven, the impact of the ICT capital was rather small. Labour had also positive contribution to the growth, but it was predominantly due to labour quantity, and less due to labour quality. During the pandemics, the bulk of the adjustment in fact went through the TFP which declined close to 5%, as the overall context was barely conducive for innovative decisions. 1/3  BIS - Central bankers' speeches  In this context, global competitiveness index in terms of innovation capabilities and ICT adoption locates us at the 97th and 70th rank (out of 152 countries), similar to Western Balkans peers, but much further from the advanced Europe.