Albania’s economy growth rate to rise, say Vienna Institute economists

TIRANA, March 11 – Albania’s economy will grow by merely 1 percent in 2010, but further currency depreciation will support the export sector, the household consumption will regain strength and improving access to credit for the private sector could raise economic growth to 4 percent in 2011 and 5 percent in 2012, according to a forecasting report by the Vienna Institute for International Economic Studies.
The report places the overall prospects for economic developments in Albania in 2010 as rather modest and sees certain downward risks from the Greek economic crisis, although these effects are difficult to forecast.
The report says economic growth in 2009 turned out much stronger than expected — above 4 percent, but the main drivers of growth were strong government investment in the wake of the parliamentary elections and a boom in the telecommunications industry due to more competition in the mobile telephony sector.
“For 2010 we expect growth as low as 1 percent given that government expenditures will tend to decrease and household consumption will stagnate in a fragile global economic environment,” the report said. “In particular the unfolding economic crisis in Greece may pose a threat to economic growth in Albania in 2010 and thereafter.”
The report notes that by December 2009, the Albanian lek depreciated 11 percent compared to the same month of the previous year. This, along with an increase in excise taxes, has caused price increases in the food and beverages sector. This will further dampen the consumption of households.
On a positive note, the lek depreciation may improve the conditions of the tiny Albanian export sector during 2010. While in 2009 exports fell by nearly 20 percent, 2010 may bring a reversal, according to the report.
However, the report notes that in 2009 it was possible to finance a huge and increasing current account deficit with growing foreign direct investment revenues from privatization. It will be difficult to reach a similarly high level of FDI in 2010.
The Greek crisis is likely to be felt in this area, as the latest data from 2004 suggest that Greece is by far the most important source country of FDI in Albania.
“A slowdown of Greek FDI inflows is very likely and will cause additional pressure on the economy,” the reports said, adding that Greek banks have a strong position in the Albanian banking sector. “Here, the Greek mother banks may find it more profitable to lend money to the Greek state and hence less capital could flow to their branches in Albania – but again, not necessarily.”