TIRANA, June 7 – The country’s central bank has warned that while the Albanian economy and financial system are largely immune to the Brexit, the country could face indirect spillover effects from blows to Albania’s main trading partners.
“Albania has a larger exposure to indirect blows that Brexit could have on the European economy and financial system in countries which are Albania’s main trading partners and every negative Brexit reaction by them would attempt transmission even to Albania,” central bank governor Gent Sejko told a press conference this week.
Shares in some banks in Italy, the country’s top trading partner, have already crashed by up to 45 percent following the Brexit vote.
Britain’s vote to leave the European Union has caused damage to banks and to the wider economy in Italy. Growth forecasts there have been more pessimistic since June 23rd, and investors fear there’ll be more defaults on loans, writes the BBC.
Neighbouring Greece, the country’s second largest trading partner, is also fearing Brexit impacts.
Greek exporters and tourist destinations say they are worried that the UK leaving the EU will hit their profits.
Some 1 million Albanian migrants live and work in neighboring Italy and Greece, whose economic recession in the past seven years has also considerably negatively affected Albania through a slowdown in trade exchanges, investment and a sharp cut in remittances.
“While the probability of Brexit extreme shocks materializing is relatively low, the Bank of Albania has the necessary willingness and right instruments to guarantee its price stability target and support the activity and health of financial system. The monetary policy could become more stimulating and if necessary non-traditional instruments could be employed,” said Sejko, implying quantitative easing, an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.
“Our analysis suggests that the Albanian economy and financial system are quite immune to direct shocks that could come from the expected exit of the UK from the European Union. Our trade exposure to the UK in the form of exports and imports is almost negligible,” said Sejko.
“Likewise, direct or financial investment originating from the UK in Albania is low, while remittances from the UK account for 10 percent of the total. In parallel, the Albania banking system also has low exposure even toward extreme forms of the UK pound fluctuations and the British financial system,” he added.
Some 52 percent of Britons voted in favour of leaving the EU on the June 23 referendum, a decision which led Prime Minister David Cameron to announce he will step down by October. The pound tumbled to a 30-year low while Moody’s rating agency downgraded the UK’s outlook to “negative” following the vote.
The UK’s Leave decision in its Brexit referendum could have negative implications on Albania’s EU integration efforts and its economy by delaying the accession process and reducing investment, local experts have said.
The United Kingdom accounted for only 0.2 percent of Albania’s exports and 0.9 percent of imports in 2015, with the annual trade exchanges at about 5.5 billion lek (Euro 39 million), according to INSTAT.
Meanwhile, the stock of foreign direct investment from the UK fell to Euro 20 million in 2014, down from Euro 56 million in 2013, according to the central bank.
The British pound has also hit a four-year low against the Albanian lek trading at about 160 lek following the Brexit vote.
Albania’s central bank kept its key rate to a historic low of 1.25 percent this week as inflation rate remains significantly below its 3 percent target and lending struggles to return to positive growth rates.
The Bank of Albania expects the Albanian economy to slightly pick up to 3 percent this year, slightly lower compared to government and IMF forecasts of 3.4 percent, saying that uncertainties continue holding back business and consumer confidence.
