Fitch expects Albania’s economy to slow down next year

Tirana Times
By Tirana Times August 22, 2018 12:55

Fitch expects Albania’s economy to slow down next year

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  • The main concern that the Fitch unit cites over Albania’s growth is a slowdown in the eurozone economy that could negatively affect the Albanian economy through lower exports, almost half of which end up in top trading partner Italy

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TIRANA, Aug. 22 –A Fitch unit has upgraded Albania’s 2018 economic outlook on the back of stronger than expected growth in the first quarter of this year, but expects the country’s economy to significantly slow down next year due to weakening eurozone growth and sluggish demand hit by rising inflation.

In its latest forecast, Fitch Solutions, former BMI Research, says it has revised upward Albania’s 2018 GDP growth forecast to 4 percent, up from a previous estimate of 3.7 percent after the Albanian economy grew by a strong 4.4 percent in the year’s first quarter fuelled by a boost in hydropower and rising commodity prices increasing the country’s oil and mineral exports.

Meanwhile, the 2019 outlook has been kept unchanged at 3.5 percent.

The main concern that the Fitch unit cites over Albania’s growth is a slowdown in the eurozone economy that could negatively affect the Albanian economy through lower exports, almost half of which end up to top trading partner Italy.

Earlier this year, Fitch downgraded Italy’s 2018 outlook to 1 percent, down from a previous 1.5 percent as the eurozone’s third largest economy struggled amid political uncertainty following the inconclusive March 4 general elections that failed to produce a clear winner.

Recessions in both Italy and Greece, Albania’s main trading partners and investors and the hosts of about 1 million Albanian migrants, had a key impact on Albania’s slowdown in the aftermath of the 2008-09 global financial crisis, negatively affecting trade, investment and remittance flows to the Balkan country for about a decade.

“Although we have increased our 2018 real GDP growth forecast on account of strong Q118 [first quarter] print, we continue to believe that economic growth will slow over the coming quarters. The external sector will face headwinds from weakening growth in the eurozone, while domestic demand also looks set to be constrained by rising inflation. This will erode purchasing power and potentially lead to earlier-than-expected monetary tightening,” says the Fitch unit.

Albania’s exports of goods and services grew by 8.6 percent in the first quarter of this year boosted by the resumption of rainfall-fed electricity exports and a hike in oil sales abroad following the suspension of work at a local refiner, according to Albania’s central bank.

Meanwhile, inflation during the first half of this year has been at 2 percent, about 1 percent below the central bank’s target, despite the local currency at a 10-year high against Europe’s single currency, significantly reducing imported inflation pressure by making imports cheaper.

Fitch attributes the pickup in inflation, which has been running below the 3 percent target for five consecutive years, to last year’s 7.8 percent hike in public sector wages.

Europe’s single currency has been trading at a 10-year low of about 126 lek for the past three months, with a series of negative effects on Albania’s highly euroised economy, primarily hitting the country’s poorly diversified exports.

Meanwhile, U.S.-based Standard and Poor’s, another top three rating agency, expects Albania’s growth to linger around an average annual growth of 3.8 percent over the next four years, in similar levels compared to the 9-year high it hit last year, and public debt to drop 65.5 percent by 2021, down from about 71 percent of the GDP this year, with both forecasts under a more pessimistic scenario compared to the Albanian government’s agenda.

The European Commission and international financial institutions such as the IMF and the World Bank expect Albania’s growth to slow down over the next couple of years, as TAP and the Devoll HPP, the two major energy-related projects that drove growth over the past four years, complete their investment stage and no major FDI project replaces them.

 

Tirana Times
By Tirana Times August 22, 2018 12:55