Five years of continuous economic expansion in Macedonia was interrupted by the 2001 conflict, which led to a contraction of 4.5% in 2001. Growth started to pick up in 2003 (3.4%) and continued in 2004 (2.9%) and the first half of 2005 (3.7%). Living standards still lag behind those enjoyed before independence. In 2005, real growth is projected to reach 3.8% with inflation of up to 1.5%. The United States is supporting Macedonia's transition to a democratic, secure, market-oriented society with substantial amounts of assistance.

Although concerns stemming from the 2001 conflict linger, all constitutional changes and legislation mandated by the internationally mediated Framework Agreement have been implemented, and Macedonia's political and security situation is stable. This has allowed the government to refocus energies on domestic reforms, boosting economic growth, and attracting increased levels of foreign investment. In 2004, the government passed a progressive Trade Companies Law aimed at easing impediments to foreign investment, providing tax and investment incentives, and guaranteeing shareholder rights. The governmentís progress on structural economic reforms slowed in 2004 as the country faced another series of challenges--the death of President Trajkovski, resulting early presidential elections, a contentious debate over Framework Agreement-mandated decentralization legislation, and a polarizing referendum on new municipal boundaries, which took place November 7, 2004.

In late 2005, Macedonian authorities concluded a new Stand-By Arrangement with the IMF and a Programmatic Development Policy Loan (PDPL) with the World Bank.

Macedonia has signed Free Trade Agreements with Albania, Bosnia and Herzegovina, Serbia and Montenegro, Bulgaria, Croatia, Ukraine, Slovenia, Turkey, Romania, and the European Free Trade Association countries. It also has signed an Interim Free Trade Agreement with the UN Mission in Kosovo.