TIRANA, Nov. 16 – Despite the economy returning to normal growth rates after a shrink in the last quarter of 2009, business and consumer confidence registered an unexpected drop in the third quarter of this year following a turning point of confidence boost about the economy reported in the first half of this year. The increased pessimism of Albanian businesses and consumers is proved by the latest survey carried out by the Bank of Albania which showed the Economic Sentiment Indicator (ESI), measuring consumer and business expectations, dropped by 6.2 percentage points in the third quarter, remaining 10 points below its historical average.
The deterioration was mainly influenced by a sharp drop of confidence in the crisis-hit construction sector. The industry and consumer confidence indexes also underwent modest drops. The services sector businesses were the only category showing signs of optimism, despite the confidence index registering a slight decrease compared to the second quarter of 2010.
However, the central bank rates the Albanian consumers’ situation as ‘very favourable’ because of standing at 3.9 percent above its historical average. The 1.7 percentage point drop in the consumer confidence index was a result of increased pessimism on the current financial situation of households, the expected economic situation and the financial situation in general. Big purchases, whose balance registered a 1.3 percentage point improvement, was described as insufficient to contribute to the overall improvement in the consumers’ optimism.
Consumers, who said the cost of living increased compared to the second quarter, expect the unemployment rate to increase during the remaining of 2010. “Some 38.9 percent of consumers expect the unemployment rate to increase compared to only 18.9 percent who are optimistic,” said the survey.
The vast majority of 77 percent of consumers expect the inflation rate after one year to remain within the central bank’s target of 3ѱ percent.
Albania’s consumer confidence index marked a turning point in the second quarter of 2010 ending its one-year declining trend as people became more optimistic about their economic futures, according to the previous survey by the Bank of Albania. Business owners and executives also had a more optimistic outlook.
Construction
The construction sector, which has been hit by a severe crisis during the first half of this year, saw another drop in its confidence index during the third quarter of this year when it fell by 10.2 percentage points to minus 23.2 percent, its lowest ever historical level. The situation is a result of the construction companies’ lack of confidence in the production, demand and employment situation in this vital sector to the Albanian GDP growth.
The presence of informal economy and lack of construction permits were two the main obstacles to the performance of this sector in the third quarter of 2010. Its capacity utilization rate also dropped to 63.1 percent, 4.8 percentage points below its historical average.
The decrease in demand and rising construction costs further deteriorated the financial situation of the construction sector which has been suffering liquidity problems and problems to repay loans. Construction companies expect the situation in the fourth quarter to remain pessimistic and producer prices to undergo another slight increase.
During the April-June period, the construction industry dropped by 3.3 percent compared to the first quarter of 2010.
This sector continued its poor performance even in the first three months of this year, dropping by 21.1 percent year-on-year and 4.3 compared to the last quarter of 2009.
Construction was also the hardest hit in the last quarter of 2009, recording a 14.4 per cent drop compared with same period of 2008 and an 11.8 per cent decrease from the third quarter of 2009.
Construction has been one of the most dynamic sectors in the country contributing to more than 10 percent of the GDP in the past years and employing 18 percent of people working in the private sector.
Meanwhile, construction costs continue increasing despite the crisis this important sector has been suffering since the last quarter of 2009.
The construction cost index rose 0.2 percent year-on-year during the second quarter of 2010 and 0.2 percent compared to the previous quarter, according to INSTAT.
Industry
The industry confidence index fell by 2 percentage points in the third quarter of this year, registering its first drop after 5 consecutive quarters. Currently, its confidence index stands at 6.3 percentage points below its historical level. The only component with a positive contribution to the index was the improved situation in inventories.
The industry sector’s increased optimism on the overall situation of businesses was influenced by improvements in infrastructure and law and order. However, the implementation of the legal framework, relations with banks and lack of export contracts during the third quarter are considered highly negative by companies operating in the industry sector, whose capacity utilization rate increased by only 1 percentage point to 70. These businesses which mainly operate in the manufacturing, mining, oil and steel industries, have better expectations for their fourth quarter performance.
INSTAT data show the industry group increased by 31.8 percent year-on-year at the second quarter of 2010 and 11.2 percent compared to the previous quarter.
Services
The services sector was the only one to retain a high level of confidence about the Albanian economy in the third quarter of 2010 with its index at 1.5 percentage points above the historical average.
Lack of managing strategies and contracts are considered the main obstacles in the performance of this sector following improvements in infrastructural and power supply problems. The capacity utilization rate during the July-September period dropped to 75 percent, 1.9 percentage points less than the previous quarter.
These businesses expect their performance to considerably improve during the fourth quarter, optimistic about their employment and demand situations.
INSTAT data show the services sector mainly represented by the trade, hotel and restaurant branches increased by 12.7 percent in the second quarter of 2010 year-on-year and 3.3 percent compared to the first quarter.
