Albania might face economic risks

Tirana Times
By Tirana Times April 5, 2019 13:53

Albania might face economic risks

Story Highlights

  • The Supervisory Council evaluates that that during 2019 have appeared risks due to the compound foreign environment, the tensed political situation within the country, and the timely compliance of the supply improvement pace with the demand for loans.

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TIRANA, Apr. 2- On March 28 the Bank of Albania (BoA) held a conference where its governor Gent Sejko talked about the monetary policy decision making based on a report made by the BoA’s Supervisory Council. The goals set are an economic growth and an inflation rate objective through low interest rates and communication of the future monetary policy.

Sejko said that the data gathered from BoA have been in line with the experts predictions, however the inner and foreign environments have displayed increased risks. The foreign environment displayed both in European and global contexts a deceleration in growth rates and a reduction in current and expected inflation rates. The central banks have revised the monetary policies in normalizing its attitude, whereas the foreign financial markets have remained calm.

During the first two months of 2019 the inflation rate in our country has decreased to 1.8 percent, reflecting thus the curbing of the exchange rates strengthening. Sejko said that according to calculations this effect will face its peak during the first half of 2019, and then will start to extinguish in the third quarter of the year.

In this framework the inner pressures on the inflation are insufficient to bring it to an objective rate (usually 3 percent). So, even though the continually expanded aggregate demands have impacted in an increased employment and wages, the production costs and profit rates are still insufficient in providing an objective inflation rate.

The economic growth rate also seems to have slowed down during the last two quarters according to data gathered from the BoA. In a great extent this slow-down reflects the production progress of electric energy and thus it is evaluated not to affect the midterm growth trends. On the other hand though, more stable seem the midterm and long-term determinant factors of the aggregate demand and economic growth.

However, indirect data show that during the last two quarters the consumption and private investments have been increasing reflecting thus an improvement in the available revenues and financial balances, an increase in the capacity utilization rates, and favorable financing conditions. Furthermore, the exports did increase in the last quarter of 2018, but they were followed by a decrease in the first two months of 2019. This decrease is due to the high energy exportation for the same period in the previous year, but also the unfavorable international conjecture for some categories of our exports.

Lastly, the monetary policy has kept its consolidated stance also during the first two months of 2019. The monetary stimulus and the fiscal consolidation have created a favorable financial environment for encouraging demand. However, the interest rates and the funding costs in the public and private sectors appear close to a historic low. But the exchange rate has been relatively stable, implying a balance between currency demand and offer.

The economic activity expansion is both supported by and reflected in the gradual increasing trend of private sector’s loans. The loans given to the private sector during the first two months of 2019 had an increase of 6 percent. This number excludes the accounting effect of the exchange rate and the extraction of lost credits from the balance sheets. This moderate growth displays a positive signal in the loan demand and offer increase. The consolidation process of the banking sector and its continuous balance-sheets improvement create preconditions for a quicker enhancement in loan offers and rhythms. A positive aspect is the decreased loan risks as an effect from the reduction of problematic loans.

Judging the current development trends the BoA evaluates that the aggregate demand will be increasing in the midterm horizon. The consumption, investments and exports growth will enable a further expansion in employment, wages and interest rates increase, and the gradual strengthening of inner inflationist pressures. The objective inflation rate is foreseen to have been achieved by 2020 if these developments together with the extinction of the curbing effect by the exchange rate continue as predicted.

With the reconfirmation of the anticipated basic scenario the Supervisory Council evaluates that that during 2019 have appeared risks due to the compound foreign environment, the tensed political situation within the country, and the timely compliance of the supply improvement pace with the demand for loans. These factors can shift developments below the expectations. Thus the monetary policy for economic stimulus will be in accordance to the economic activity pace and stability, or its normalization will be postponed if the risk factors materialize.

 

Tirana Times
By Tirana Times April 5, 2019 13:53