The outlook has worsened the most for Albania, Romania and Serbia, which are heavily exposed to the troubled Greek economy, says the EBRD in its October report
TIRANA, Oct. 18 – Citing the severe crisis effects in neighbouring Greece, the European Bank for Reconstruction and Development (EBRD) has lowered Albania GDP growth forecast to 1.9 percent for 2011 and 1 percent for 2012, down from 2.5 percent and 3.1 percent respectively last July. In its new Regional Economic Prospects released this week, the EBRD lowered Albania’s growth forecast for the second time in a row with the projection for 2012 undergoing a 2.1 percent cut. “The outlook has worsened the most for Albania, Romania and Serbia, which are heavily exposed to the troubled Greek economy,” says the EBRD in its October report. The outlook for the Albania economy is even worse compared to the International Monetary Fund which expects a 2.5 percent growth for this year and 3.5 percent for 2012, almost twice higher compared to government’s expectation. However, the report puts Albania at low risk from exposure Eurozone crisis, with only 13 percent of the Albanian GDP exposed to Eurozone, 8 percent of the GDP in exports and 5 percent in external debt. “Albania experienced a slowdown in economic activity in the past quarter largely due to the weak performance of its key EU markets, Greece and Italy. Albania’s strong trade, investment and remittance ties to these countries are likely to continue to hold back growth in the coming year,” said the report. The EBRD expects the GDP to grow by 1.8 percent year-on-year in the second quarter of 2011. The new forecast places Albania’s growth as one of the lowest in the region for the next two years. In 2009, Albania was the South-eastern European country in the EBRD region to register positive growth rates. The EBRD is predicting a slow-down in emerging Europe’s economic growth next year with the continuing eurozone sovereign debt crisis posing challenges to recovery from the 2008-09 global financial crisis. The EBRD’s latest Regional Economic Prospects report underlines that economic fundamentals in the EBRD region are stronger in several respects than before the onset of the crisis. It notes that increased stress in the eurozone could have an even more severe impact on emerging Europe this time around. The latest forecasts assume a protracted but ultimately contained eurozone debt crisis. Southern and eastern Europe is seen growing at 1.7 and 1.6 per cent in 2011 and 2012, respectively, with the 2012 growth rate more than 2 points below the July forecast. Vulnerability to Greek downturn “The economy in Albania continues to grow, thanks mainly to a good performance in exports and industry. However, the country is particularly vulnerable to a serious Greek downturn, with which it enjoys close linkages through trading, investments and remittances,” says the EBRD report. In an earlier report, the EBRD said the key macroeconomic risk in Albania stems from potential spillover effects from Greek crisis, mostly in the form of falling investment, lower remittances, higher costs for local subsidiaries of Greek banks and reduced trade flows Around 46 percent of immigrants sending remittances are reported to living in neighboring Greece, compared to 41 percent in Italy, according to a central bank survey. Albania has more than 600,000 immigrants in Greece, who make up 10 percent of the Greece’s total workforce. Greece is currently the top foreign investor and the second biggest trade partner after Italy since the early 90s. Greek businesses are present in almost every sector of the Albanian economy, including strategic ones such as telecommunications, banking system, energy, industry, construction, trade and tourism, significantly contributing to the country’s economic growth. Official data show both remittances from Greece and exports to it have been affected during the past two years. A recent EBRD survey showed the global economic crisis has affected a majority of households in Albania. Around 60 per cent of respondents say that their households have been significantly affected, compared to a transition region average of about 50 per cent, says the report published this week which surveyed almost 39,000 households in 34 countries. “This is despite the fact that Albania was one of the few countries to maintain positive growth during the crisis. There is little variation across age groups, although the upper-income category have been less affected than those lower down the income scale,” added the report.
