Consumption, investments rates remain poor, BoA says

TIRANA, Jan. 26 – The performance of consumption and investments in the country remains poor despite the economy registering a 4.9 percent growth rate during the third quarter of 2009, Bank of Albania governor Ardian Fullani told reporters in press conference on Wednesday after the central bank decided to keep the key interest rate unchanged at 5 percent.
“Private consumption continues being conditioned by consumers’ hesitating behaviour in spending money and little support with loans,” said Fullani, adding that low consumer demand had also stopped businesses in making new investments.
Differently from 2010 when the economic growth was mainly based on exports which registered a 60 percent increase compared to the first eleven months of 2009, the Bank of Albania (BoA) expects the 2011 growth to be based more on domestic demand following declining exports in the fourth quarter.
The country’s banking system position has considerably improved during the past two years and is expected to further support consumption and investments, said Fullani.
BoA says that decrease in the key interest rate in mid-2010 had brought positive impacts on lowering interest rates for lending in the national currency lek, but had not managed to increase lending in the second half of the year. Currently, the repo rate for the lek is at 5 percent, at one of the lowest ever historical level. Despite slightly easing lending standards, credit growth has been at poor rates mainly because of low demand by private sector because of non-utilized production capacities as consumers become more cautious about spending. The difficult situation business and consumers are facing is also proved by the rapid increase in bad loans which hit a record 13.5 percent of the total loan portfolio at the end of the third quarter of 2010, up from 9.82 percent during the same quarter in 2009 and 12 percent at the end of the second quarter of 2010.
In 2011, the central bank expects the country’s economy to perform at the same rates of 2010, when government expects a 4.1 percent growth rate. Inflation rate is also expected to remain within the 3ѱ target band even in 2011.
BoA suggests a new growth agenda is needed to direct the Albanian economy toward more sustainable development and increase its competitiveness in global markets.
A more favourable environment is also needed to attract more foreign direct investment.
The World Bank has recently suggested that Albania can sustain growth in the future by implementing a new generation of policies and reforms focused mainly on education and skills, ICT development, energy sector, and better governance and rule of law.
“Reaching the upper middle income country status in a relatively short time is a major achievement. It also poses new challenges. Under this new status Albania has to compete with low-wage poorer countries as well as with rich country innovators,” said Kseniya Lvovsky, the World Bank Country Manager for Albania introducing the “The New Growth Agenda” last December.