TIRANA, Oct. 27 – Developments in Greece may have a larger than expected impact on Albania’s growth and poverty reduction prospects, through reduced remittances, exports and investment, warns the World Bank in its latest economic update for October 2015.
Neighbouring Greece, where some 500,000 Albanian migrants live and work, is the country’s second most important trading partner, the largest foreign investor in Albania and the key source of remittances. Greece’s six-year recession which came to an end only in 2014 and ongoing problems with its debt crisis have also had an impact on Albania sharply reducing remittances and trade exchanges.
“A prolonged crisis in Greece beyond the baseline scenario, could further shock the business and consumer confidence, the labor markets and living standards of the population could be affected. In particular, given the high number of Albanian migrants and seasonal workers to Greece,
remittances inflows could decrease from an already depressed level since the wake of the 2008 crisis,” says the World Bank.
The escalating crisis in neighboring Greece will affect Albania’s growth by at least 0.25 percentage points, Albania’s central bank says in its latest analysis.
While the neighboring country has reached a new €85 bln three-year bailout deal with its creditors, the escalation of the crisis in recent months in Greece is expected to have a real impact on the Albanian economy in the second half of this year as the country’s second top trading partner, main foreign investor, and the host of some 500,000 migrants who have been the key source of remittances.
Experts say the spillover risks from the Greek crisis are relatively low and mainly affect exports and remittances, already on a downward trend since Greece plunged into recession in 2008. Meanwhile, the three Greek bank subsidiaries in Albania are considered safe because of operating as independent from their parent banks.
The World Bank expects the Albanian economy to expand by 3.4 percent in 2016 and by 3.5 percent in 2017 albeit remaining below potential. “Developments in Greece, sluggish credit and labor markets and the slowing down of the reform momentum, including fiscal consolidation, prevent growth returning to a sustainable path.” As in 2015, for the next two years growth is expected to be broad-based, driven by both domestic and external demand. Net exports are expected to pick up following a gradual recovery in the EU. Improvement of the business climate is expected to boost private investment, and consumption on a medium-term horizon, despite the impact of the debt crisis in Greece on remittances, exports and the credit market.
Growth prospects for Albania hinge on the implementation of the structural reform agenda on energy, financial management of public investment, and pensions.
“Albania faces the challenge of resiliently sustaining economic growth and creating jobs, while ensuring that the poor and vulnerable are adequately protected,” says the report.
