TIRANA, Nov. 9 – The European Commission has downgraded Albania’s economic outlook for the next couple of years on uncertainties related to the government’s reform plans and the economic situation in neighbouring Greece.
In its new Autumn forecast on European economies, the European Commission revised downward Albania’s 2015 GDP growth forecast to 2.7 percent, down from 3 percent in its previous spring outlook, in line with the Albanian government and the IMF which reduced the growth target on lower international oil and base metal prices affecting exports and spillover effects from the debt crisis in neighbouring Greece, Albania’s second major trading partner.
The forecast for 2016 has also been slightly revised to 3.3 percent, down from an earlier 3.6 percent, which is among the highest amid EU aspirants. The Commission expects the Albanian economy to accelerate to 3.8 percent in 2017 on a revival in investments and improvements in the business environment.
“Economic activity is expected to strengthen gradually, driven by a revival in the investment cycle. Consumer spending is projected to pick up progressively as soon as uncertainties related to government reform plans and the Greek economic situation fade. Monetary accommodation and fiscal consolidation are set to continue, and the public debt ratio is forecast to start declining as from 2016,” says the Commission in its report.
The report hints FDI will get a boost from the start of construction of the major Trans Adriatic Pipeline bringing Caspian gas to Europe through Albania to Italy and the ongoing construction of the Devoll hydropower plant by Norway’s Statkraft which is set to become the country’s biggest ever hydro energy project by 2018.
“Foreign savings are also increasingly tapped to fund investment, principally in the form of FDI inflows which are projected to remain high, driven by the expected scaling up of some major energy-sector projects and improvements in the business environment,” says the Commission.
The report also warns about spillover effects from the escalation of the crisis in neighbouring Greece, the country’s second top trading partner and the host of 500,000 Albanian migrants who have traditionally accounted for the majority of remittances to Albania. Greece is projected to face new recession in 2015 and 2016, just as it escaped its worst ever six-year recession in 2014 fuelled by a debt crisis.
“Should their situation deteriorate more than expected and should rising remittances from elsewhere not compensate for this, the decrease in this particular source of income might also negatively affect household consumption,” warns the report.
The European Commission also hails the Albanian government’s reforms in the electricity sector and measures to fight widespread informality, despite concerns over the impact on consumption.
“The government’s recently announced measures to fight widespread informality in the economy are impacting on consumer confidence, which is likely to remain volatile until the economy adjusts to the new realities. Therefore, household spending is likely to pick up only to the extent that the events prompting higher precautionary saving recede in importance,” says the report.
