“The anaemic growth reflects the extent of difficulties in the Eurozone and particularly in periphery countries that are Albania’s major economic partners. Fiscal challenges are severe, with public debt above 60 percent of GDP, and financial sector vulnerabilities are evident with NPLs of around 25 percent of total loans,” says the EBRD.
TIRANA, Nov. 11 – Citing spillover impacts from the Eurozone crisis and fiscal challenges with public debt and non-performing loans, London-based EBRD has downgraded Albania’s GDP growth forecast to 1.2 percent for 2013 and 2 percent for 2014. In its new regional economic prospects report, EBRD which is one of the largest private sector investors in Albania, expects Albania’s growth to drop to 1.2 percent in 2013, down from 1.6 percent in 2012, when it was the second top performer in the South-Eastern Europe region. At 1.2 percent in 2013, Albania’s growth would lag behind regional Montenegro, Serbia, Romania, Macedonia and Kosovo which are expected to grow between 1.4 to 2.4 percent and be better only compared to Bosnia and Herzegovina and Bulgaria which are expected to grow by 0.1 and 0.4 percent respectively.
Prospects are slightly more optimistic for 2014 when the EBRD forecasts the Albanian economy will grow by 2 percent, down 0.2 percent compared to the SEE average.
The EBRD expects Albania’s growth to further decelerate to 0.2 percent year-on-year in the third quarter of 2013.
“Economic activity in Albania has been weakening through 2012 and the first months of 2013. In 2012, GDP grew by only 1.6 per cent, which was considerably lower than previous years when output increased by more than 3 per cent annually. The subdued economic performance has continued into 2013. The anaemic growth reflects the extent of difficulties in the Eurozone and particularly in periphery countries that are Albania’s major economic partners. Fiscal challenges are severe, with public debt above 60 per cent of GDP, and financial sector vulnerabilities are evident with NPLs of around 25 per cent of total loans,” says the EBRD.
Albania’s public debt at 61.4 percent of the GDP and non-performing loans at 24.4 percent are among the highest in the EBRD SEE region of eight countries.
The EBRD says Albania’s inflation rate is expected to climb to 2.1 percent in 2013, up from 2 percent in 2012, remaining within the central bank’s 3 percent target band.
Modest recovery for
South Eastern Europe
Growth in South Eastern Europe (SEE) will continue recovering from the very low levels recorded in 2012 (0.2 per cent on average) but will remain modest, the EBRD says in its latest Regional Economic Prospects report published this week. Growth in all countries is expected to be positive, reaching on average 1.6 per cent this year and 2.2 per cent next year. SEE is benefitting from the positive signs in the eurozone.
The economies of South-eastern Europe are mostly stagnating or showing only minimal growth at present. Domestic demand is generally subdued and investment flows to the region continue to lag well behind levels seen in the pre-crisis years. The financial sectors in SEE remain calm but the level of non-performing loans continues to rise in most countries and is close to or has exceeded 20 per cent of total loans in several cases. All countries in the region face severe fiscal challenges as weak revenues heighten the need for expenditure restraint and sometimes painful cuts to public services. On the more positive side, exports are performing well in most cases, boosted by slightly improved economic performance in the Eurozone and increasing access to non-EU markets. Inflation is generally low throughout the region and has come down significantly in a couple of cases where it had been above the central bank’s target. However, progress in deeper structural reforms remains hesitant throughout the region, being constrained by the difficult economic environment.
“Potential growth will continue to be weak in the absence of reforms, low investment and high structural unemployment that is eroding skills,” said EBRD Chief Economist Erik Berglof.
Risks to the new forecasts include a possible further deterioration of the situation in the eurozone. The chance of this happening seems less likely now, but there is an increased risk of an impact from economic slowdown in China and other large emerging markets. In addition, the risks to growth from a new fiscal impasse in the United States have not gone away.
The downward revisions to growth primarily reflect a slowdown in Russia, Eastern Europe and the Caucasus as well as in the southern and eastern Mediterranean, compared to what was expected in May, says the EBRD.
Sluggish growth in year’s first half
The Albanian economy continues facing escalating crisis impacts affected by the Eurozone crisis and problems at home with sluggish domestic consumption, and public debt hovering above 62 percent of the GDP. Although exports and government spending grew by double digits in the first half of this year, consumption and investments remained sluggish as indirectly unveiled by the performance of valued added tax and imports of machinery of equipment. Lending having plunged to negative growth rates of around 2 percent as bad loans have reached a record of around 25 percent, and deposit growth rates significantly slowing down are some of the indicators confirming the difficult situation both households and businesses are facing during this year.
The critical situation of the Albanian economy is also confirmed by the latest data published by the country’s state Institute of Statistics, INSTAT, which shows the GDP grew by only 1.1 percent year-on-year in the second quarter of 2013 with only the construction, agriculture and industry branches registering positive growth rates. Taking into account that the Albanian economy grew by 1.7 percent in the first quarter of 2013, the GDP growth rate for the first half of 2013 is at only 1.35 percent, one of the lowest in the past 16 years, higher only compared to the first half of 2012 when the Albanian economy grew by only 0.7 percent, affected by severe weather conditions in the first quarter of the year and an energy crisis.
Although remaining one of the best performing enlargement economies in the global crisis years of 2009 to 2012, the Albanian economy is showing sluggish signs of recovery and has been overtaken by most EU aspirants in the first half of this year, shows a European Commission report. At only 1.1 percent during the second quarter of 2013, Albania’s GDP registered the second lowest growth rate among candidate and potential candidate countries, better only compared to Serbia.
IMF and World Bank forecasts
The International Monetary Fund expects the Albanian economy to remain sluggish in the next five years with growth rates ranging between 1.7 percent in 2013 to 2.5 percent in 2018. In its October World Economic Outlook, the IMF says the Albanian economy is expected to grow by 1.7 percent in 2013, up only 0.1 percent compared to 2012 when it registered its poorest GDP growth rate in the past 15 years and half of the average 3 percent growth rate from 2009 to 2011. The IMF expects Albania’s growth rate to slightly accelerate to 2.1 percent in 2014 and rise to 2.5 percent in 2018 and public debt to increase from 64.8 percent in 2013 to 82.6 percent in 2018. In its latest country report on Albania, the IMF says the economy is sluggish because of weak domestic demand. “Growth is expected to remain low in 2013, at 1.7 percent as stagnating credit, troubled corporate balance sheets, and declining remittances are a drag on domestic demand, while the rise in arrears has aggravated liquidity constraints in the private sector.”
In its latest forecast made last summer, the World Bank World Bank expects the Albanian economy to grow by 1.8 percent, up from an estimated 1.6 percent in 2012. The 2013 growth forecast is 0.1 percent lower compared to the developing Central and Eastern Europe as a whole which includes Albania, Bosnia and Herzegovina, Bulgaria, Georgia, Kosovo, Lithuania, Macedonia, FYR, Montenegro, Romania, Serbia. The World Bank expects growth in Albania to slightly accelerate to 2 percent in 2014 and 3 percent in 2015.
Setting a credible debt target and achieving gradual fiscal consolidation over the medium term is Albania’s biggest challenge as the country economy struggles with crisis impacts from the Eurozone and debt levels now above the former 60 percent of the GDP ceiling, the World Bank and the IMF have warned.
Gov’t lowers growth forecast
The Albanian government has lowered its GDP forecast for 2013 to only 1.2 percent after the economy grew by only 1.1 percent year-on-year in the second quarter of the year. Under a normative act reviewing the 2013 budget, the Albanian government expects growth to slightly accelerate to 1.9 percent in 2013, slightly better compared to last year’s 1.6 percent, the lowest annual GDP growth rate since the 1997 pyramid investment schemes and the average of 3 percent in the global crisis years of 2009 to 2011.
However, the publication of the GDP growth rate for the second quarter of 2013 by the country’s Institute of Statistics has made the Albanian more pessimistic about 2013. “Considering the GDP growth of 1.1 percent in the second quarter of 2013 recently published by INSTAT, a piece of information which was not available at the time the budget review was submitted to Parliament, we now forecast the real GDP growth rate for 2013 will be at 1.2 percent,” Finance Minister Shkelqim Cani said during the budget cuts approved under a normative act in late October.
