World Bank warns slow Eurozone recovery poses risks to growth

Tirana Times
By Tirana Times May 29, 2015 09:43

World Bank warns slow Eurozone recovery poses risks to growth

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  • “Prolonged stagnation in the Eurozone, and a slower than projected pace of recovery in the Euro area could lead to lower than expected growth, revenue collection and fiscal consolidation,” says the World Bank

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TIRANA, May 17 - A slower recovery in the Eurozone could lead to slower than expected growth, revenue collection and fiscal consolidation and have implications for the development policy loan in Albania, warns the World Bank in its latest report after pledging up to $1.2 billion in lending in the next five years.

"Prolonged stagnation in the Eurozone, and a slower than projected pace of recovery in the Euro area could lead to lower than expected growth, revenue collection and fiscal consolidation. Moreover, given the large exposure of the financial sector to external regulatory shocks, there are risks of potential pressures from deleveraging of foreign banks," says the World Bank.

"This risk will be mitigated by encouraging more diverse linkages to regional and global markets beyond Albania's traditional investment, trade and migration partners," says the report.

The global and Eurozone crises in 2008 brought Albania's growth to a near stand-still by 2012, and the country is struggling to recover, particularly given its historic ties to Europe's poorer performing economies. Although Albania avoided the recession seen elsewhere in Europe, the dramatic slowing of growth coupled with fiscal indiscipline and reform paralysis exposed severe macroeconomic imbalances, with a rapid escalation in public debt and arrears, unsustainable deficits in the energy sector and a sharp increase in non-performing loans in the banking sector. The poverty rate rose to 14.5 percent along with rising unemployment in the aftermath of the crises, says the World Bank.

"Because of Albania's close links to the Greek and Italian economies, which were among the most affected in Europe, exports, remittances, and financial flows declined. While exports drove the limited expansion of the economy post-2008, they remained highly market- and product- concentrated, with significant and increasing physical capital content in non-labour intensive sectors such as minerals and unrefined oil."

FDI inflows, which, in 2000–2008, had accelerated at an annual average of 3.8 percent, slowed to 1.7 percent per annum between 2009 and 2013.

With about 40 percent of the population living abroad mainly in Greece and Italy, Albania has been among the top remittance receiving nations in the world. Remittances have trended downward since 2009 as migrant jobs were cut in the light of recession in Greece and Italy. The current account deficit corrected mainly through a decline in imports, due to lower than pre-2008 consumption and investment. Despite maintaining a positive contribution to growth, exports post-2008 remained unsophisticated and far from reaching the country's potential, says the World Bank.

Tirana Times
By Tirana Times May 29, 2015 09:43