Business confidence worsens, individuals more optimistic

TIRANA, Oct. 16 – While business confidence continues its downward trend, consumers became slightly more optimistic in the third quarter of 2012 on improved savings, big purchases and expectations about their financial situation, according to a survey published by the Bank of Albania this week. Despite increasing by 1.3 percentage points during the third quarter of 2012, consumers’ confidence index remains around 1 percentage point below its long-term historical average. “Consumers’ rising saving trend has been accompanied by a deterioration of their expectations about the future economic situation, whose balance dropped by 1.8 percent in the third quarter,” says the central bank survey.
Consumers say the cost of living in the third quarter of 2013 dropped and expect unemployment rates in the next six months to drop.
The slight improvement in the consumer confidence could not prevent the downward trend of the Economic Sentiment Indicator which dropped by 2.3 percent to 76.1 percent in the third quarter of 2012. The situation is a result of 6 percent drop in confidence in the construction and services sectors and 1.4 percent decrease in the confidence index of the industry sector.
The services sector, which accounts for around 60 percent of the GDP, registered a 6 percent confidence drop on worsening expectations about the employment and financial situation. Services businesses evaluate insufficient demand as the key factor preventing their full use of capacity utilization rates. Their expectations for the final quarter of 2012 remain pessimistic also because of the general economic situation.
The construction sector, which has been suffering crisis impacts since 208, registered another 6 percent drop in the confidence index, which plunged to 30 percent below its long-term historical average. The situation is a result of worsening demand, production and employment indicators.
The industry sector, which accounts for 12 percent of the GDP and is dominated by processing exporting businesses, registered a 1.4 percent drop in its confidence index during the third quarter of 2012 on worsening internal and external demand. Expectations about the final quarter of 2012 remain pessimistic.
The difficult situation consumers and businesses are facing is also indicated by government revenues and the performance of some of the key taxes. Government revenues continue suffering as domestic consumption, the key driver of Albania’s growth, struggles due to consumer’s falling purchasing power and their rising saving trend. Finance Ministry data show government collected 218 billion lek in the first eight months of this year, up 3.7 percent compared to the same period last year but down 5.3 percent or 12 billion lek (Euro 84 million) compared to the target set for 2012.
The value added tax, which accounts for around 38 percent of total tax revenues, and indirectly measures consumption, grew by only 2.7 percent in Jan-Aug 2012 but was down around 5 billion lek compared to the set target. The excise tax imposed on the so-called luxury goods was down by 6.1 percent compared to the first eight months of 2011, revealing that Albanian have cut down on fuel, tobacco, coffee and beer consumption in these times of crisis.
What’s worse businesses continue suffering with the profit tax for the first eight months of 2012, down by 12.5 percent.
With revenues underperforming, investments have been the hardest hit. Data show government spend 35 billion lek on investments in Jan-Aug. 2012 down 16.8 percent compared to the same period last year and 7 percent less than it had planned.