Eurozone recovery, TAP to accelerate sluggish growth

Tirana Times
By Tirana Times December 29, 2014 12:27

Eurozone recovery, TAP to accelerate sluggish growth

Story Highlights

  • Albania’s greatest news for 2015 is that the Trans-Adriatic pipeline bringing Caspian gas to Europe will finally kick off its construction. A senior TAP official says Albania will benefit around 1 billion euros in investments from TAP's construction in the next three years

By Ervin Lisaku

TIRANA, Dec. 22 – Top trade partners Italy and Greece escaping recession and the start of the Trans Adriatic Pipeline construction are expected to have a major impact on the Albanian economy in 2015 when government and international financial institutions expect a recovery to 3 percent after sluggish GDP growth rates of 1 to 2 percent in the past three years.

Albania’s prospects have in particular improved as top trade partner Italy is heading toward recovery and Greece has escaped 6-year recession.

Greece's escape of its crippling six-year recession with two consecutive positive growth rates in the second and third quarter of 2014 is good news for the economy in Albania where the neighbouring country is the second top trade partner and the largest foreign investor. However, three consecutive quarterly negative growth rates in Italy, the country's top trade partner and one of the key foreign investors, unveils that the Albanian economy continues suffering negative impacts from these two eurozone economies, which are host to around 1 million Albanian migrants and the main source of migrant remittances.

Prospects for 2015 appear rather more optimistic as Italy is expected to register positive growth of 0.8 percent overcoming its recession in the 2012-2014 period, according to IMF forecasts.

Prospects for Greece are even more optimistic as the neighbouring country is expected to post positive growth of around 0.6 percent in 2014 escaping its worst-ever recession and accelerate to 2.9 percent in 2015.

The two neighbouring countries account for around 50 percent of Albania’s trade exchanges, being the top investors in Albania and the overwhelming source of migrant remittances.

Albania’s greatest news for 2015 is that the Trans-Adriatic pipeline bringing Caspian gas to Europe will finally kick off its construction.

TAP which is expected to bring gas to Europe through Greece, Albania and Italy will generate one of that Albania’s largest FDI projects, with important benefits for a number of industries, including manufacturing, utilities and transport.

A senior TAP official says Albania will benefit around 1 billion euros in investments from TAP's construction in the next three years. TAP is scheduled to start construction in 2015 and carry the first gas by 2019. The pipeline will transport natural gas from the giant Shah Deniz II development in Azerbaijan through Greece and Albania to Italy, from which it can be transported farther into Western and Central Europe.

Findings by Oxford Economics study show that during its four years of construction (2015-18), inclusive of direct, indirect and induced effects, TAP will contribute a total of Euro 370 million to Albanian GDP, create an average of 9,900 jobs per year and generate Euro 90 million for the Albanian treasury.

Albanian experts have described TAP as an opportunity that would benefit Albania both economically and politically, making the country an important hub of the international gas pipeline for the Western Balkans.

 2015 prospects

In a bid to bring the economy back to sustainable growth, the Socialist Party-led left wing majority has approved a rather overoptimistic budget for 2015 expecting a 3 percent growth for 2015 and a slight reduction of public debt already hovering at 70 percent of the GDP at a time when the country's economy continues suffering crisis impacts with the GDP having grown by only 0.56 percent in the first half of 2014.

The Albanian economy closed another difficult year in 2014 although growth is estimated to have slightly accelerated to 2 percent, up from 1.4 percent in 2013 and only 1 percent in 2012, which was the worst year since the collapse of the notorious pyramid investment schemes in 1997.

Prospects for 2015 appear slightly more optimistic as both government and international financial institutions expect growth to proceed to 3 percent which was the average growth rate of the 2009-2011 period when Albania was one of the best performers in the region, but half of the pre-crisis decade of 6 percent.

However, with the crisis impacts in the eurozone still lingering, the perception at home is that Albania continues remaining in crisis considering that its top trade partners Italy and Greece, where around 1 million migrants live and work, have been facing tough times there and remittances have almost halved since their peak level in 2007 just before the onset of the global crisis.

In fact, growth rates of 2 to 3 percent for a developing economy such as Albania have almost no obvious impacts on the everyday life of citizens who are among Europe's poorest.

Youth unemployment at around a third, a sharp perceived reduction in the purchasing power, non-performing loans at around a quarter and some recent tax hikes, including basic goods such as electricity, prove the difficult situation both Albanian consumers and businesses are facing.

An online poll conducted by Top Channel TV shows around three quarters of 7,500 respondents think the purchasing power deteriorated in 2014.

In addition, public debt at 70 percent of the GDP, exports having slowed down, and foreign direct investments suffering a double-digit decline mainly due to a 5 percent increase in the corporate income tax and lack of privatization income, have had a negative impact this year. A 24 percent drop in public investments in the first 11 months of 2014 also reconfirm the tight fiscal policy the Socialist Party-led government has been following after it came to power in September 2013 in an effort to bring the public finances back to normality.

The clearance of arrears, lending having turned to positive growth rates, consumption and private investments recovering are positive signs the Albanian economy is heading towards progress. In addition, the improving business climate and efforts to reduce widespread informality and reform the energy system are positive steps.

 Mixed expectations

 In line with the Albanian government and the IMF, the World Bank expects the Albanian economy to recover to 2.1 percent in 2014 and accelerate to 3.3 percent in 2015 and to 3.5 percent in 2016, slightly above the average of Central and Eastern European economies.

London-based EBRD says Albania will see a modest upturn in 2014-2015 with growth of 1.7 and 2.0 per cent, respectively supported by a new agreement with the IMF and World Bank assistance in dealing with high levels of non-performing loans and weak credit growth.

The Vienna Institute for International Economic Studies has made the most pessimistic forecast about the Albanian economy and expects growth to hover around 1 percent in the next couple of years.

“Weak domestic demand, especially due to fiscal austerity measures, is the main reason for the sluggish development that is a far cry from pre-crisis economic dynamics. The signals emanating from the private sector are contradictory and do not make for a more optimistic outlook at present,” adds the Vienna Institute.

 

 

 

Tirana Times
By Tirana Times December 29, 2014 12:27