Eurostat: Albania’s GDP per capita, consumption growth comes to a standstill

TIRANA, June 19 – Albania has made one of the greatest progress among EU aspirant Western Balkan countries in bridging the gap with leading EU economies over the past decade, but yet economic activity and consumption rates in the country remain at about a third of the EU average, according to Eurostat, the EU’s statistical office.

The GDP per capita, an indicator of economic activity, and the actual individual consumption, a measure of households’ material welfare, have almost remained at a standstill in the past nine years following the 2008-2009 global financial crisis despite Albania being the region’s best economic performer and the only Western Balkan country to escape recession.

GDP per capita in purchasing power standards (PPS), an artificial currency unit that eliminates price level differences between countries, was at 29 percent of the EU 28 average in 2017, having almost remained unchanged for the past eight years and increasing by only six percentage points compared to 77 percent below the EU average in 2007 when Romania and Bulgaria joined the EU.

Meanwhile, Albania’s actual individual consumption (AIC) was at 37 percent of the EU average in 2017 having fluctuated at about the same levels for the past six years, but increasing by 9 percentage points compared to eleven years ago just before the onset of the global financial crisis when Albania enjoyed a pre-crisis decade of growth at an average of 6 percent annually.

Albania’s economy has grown by an average of 2.8 percent annually in the past four year, but economy experts say GDP growth has been non-inclusive and mainly fuelled by some large-energy related projects and benefitting only a fifth of a population.

Experts say the Albanian economy has to grow by an average of 6 percent annually in order to produce tangible growth for the common Albanians who have taken to massive migration in the past five years, mainly in ungrounded asylum-seeking in rich EU members despite the country being a NATO member hopeful of launching accession talks with the EU by the end of this month.

The poor starting point in the early 1990s when Albania emerged from Europe’s harshest communist regime and a failed centrally planned economy, is the main reason behind the poor progress.

Both the GDP per capita and actual individual consumption rank Albania the Western Balkan’s worst performer, apparently better only compared to neighboring Kosovo, Europe’s youngest country which gained its independence a decade ago.

GDP per capita among regional EU aspirant countries ranges from 32 percent of the EU average in Bosnia and Herzegovina to 37 percent in Serbia and Macedonia and 44 percent below the EU average in Montenegro, the region’s smallest country, mainly relying on tourism.

Actual individual consumption measured in purchasing power parities also follows a similar trend ranging from 41 to 42 percent of the EU average in Macedonia and Bosnia and Herzegovina to 46 percent in Serbia, the region’s largest economy and 57 percent in Montenegro, according to 2017 Eurostat data.

At about a third of the EU average, GDP per capita in the Western Balkans, a region of some 20 million residents, is significantly below EU leading economies, but only 20 to 30 percent compared to EU laggards Bulgaria, Croatia and Romania.

An earlier Eurostat report has shown Albania’s price levels for consumer goods and services are at 49 percent of the EU average, Europe’s second lowest.

When compared to disposable income, price levels, especially for food and non-alcoholic beverages at 72 percent of the EU average, are too high for the average Albanian. The situation is a result of the high level of imports and VAT being applied at an undifferentiated 20 percent rate even on basic food products.

“Food and non-alcoholic beverages” takes the majority 44.3 percent of households budgets, a survey by Albania’s state statistical institute, INSTAT, has shown.

Albania’s GDP of about €12 billion is lower only compared to that of Serbia and Bosnia and Herzegovina among the six EU aspirant Western Balkans countries. Albania’s GDP per capita was estimated at about €4,000 in 2017.

Bridging the gap with EU

Albania and other Western Balkans EU aspirant countries could need up to two centuries to catch up with EU living standards, a report by London-based European Bank for Reconstruction and Development has shown earlier this year.

The 200-year gap is the pessimistic convergence scenario that the EBRD predicts for the region to fully converge with average EU living standards compared with a baseline scenario of 60 years and an optimistic scenario of 40 years.

The findings of the EBRD report are in line with a late 2017 World Bank report showing that catching up with the average EU income could take Albania and other EU aspirant Western Balkan economies about six decades unless current sluggish GDP growth doubles to 5 or 6 percent, the World Bank has warned in a recent report.

Some catch-up with EU living standards has already taken place in the past 15 years when the Western Balkan economies grew by an average of 3.2 percent from 2001 to 2016 compared to a growth rate of 1.4 percent in the European Union.

EU leaders are expected to decide on whether opening accession negotiations with Albania and Macedonia in late June following positive recommendation by the European Commission, the EU’s executive arm, but yet amid skepticism by some member countries.

Serbia and Montenegro are already holding talks while Bosnia and Herzegovina and Kosovo still remain potential EU candidates.

Poor rule of law and corruption remain serious concerns in the whole region in attracting foreign investment as regional leaders prepare to implement an EU-backed regional economic area to remove trade barriers in a common market of 20 million consumers.

Data in Purchasing power parities (PPSs): EU average = 100%; Source: Eurostat