TIRANA, July 12 – The Albanian economy registered the Western Balkan region’s highest growth rate in the first quarter of this year, but prospects for the second quarter of the year when the country faced a pre-elections political deadlock and a prolonged drought that continues do not appear as optimistic.
“Available data suggest some slowing of economic growth in the second quarter, possibly reflecting the unsettled political situation in the run-up to the parliamentary elections and adverse weather conditions,” says the European Commission in its quarterly report on candidate and potential candidate countries.
The Albanian economy grew by an annual 3.9 percent in the first quarter of this year, driven by the construction sector which is back as one of the key contributors to the country’s growth thanks to some major energy-related projects, already in their peak construction stage.
The first quarter growth in the five other EU aspirant economies ranged from zero in Macedonia which struggled to form a new government following protracted political crisis, to 1.2 percent in Serbia, the region’s largest economy, 3.2 percent in Montenegro and 3.8 percent in Kosovo. No data is available on the first quarter growth in Bosnia and Herzegovina, whose economy grew by 2 percent in 2016.
The European Commission expects the Albanian economy to grow by 3.7 percent in 2017 and pick up to 3.9 percent in 2018 on some major energy-related investment and consumption recovery.
Albania’s central bank and international financial institutions had also earlier warned the prolonged political crisis fuelled by a 3-month protest by the main opposition Democratic Party demanding guarantees for free and fair elections in the run-up to the June 25 elections is expected to have a negative contribution to country’s economy. The political stalemate was overcome only in late May, paving the way for the June 25 elections with some caretaker ministers proposed by the opposition Democrats to handle elections.
Central bank data shows business and consumer confidence suffered a blow in the year’s second quarter while credit struggled to remain at positive growth rates as non-performing loans still remain at a high level of 16 percent, down from a peak 25 percent in mid-2014.
The Economic Sentiment Indicator, measuring both business and consumer confidence, was down by about 10 percentage points in the second quarter of this year, but yet remained above its historical average. Business and consumer confidence has mostly been negative in the past eight crisis years with only short spells of climbing above its historical average.
A central bank survey has also shown the lending standards for businesses remained almost unchanged in the second quarter of the year, but ‘slightly eased for households.
“The update of the economic analysis with new statistics shows that the Albanian economy continued growing in the first half of the year. Economic growth was at 3.94 percent in the first quarter of the year, while available data suggests a slowdown in the second quarter,” central bank governor Gent Sejko recently said.
“One of the factors is related to the insecurity accompanying pre-election periods. In addition, another insecurity in the past month also stemmed from unfavorable weather conditions, whose effects can display in certain production sectors. Effects resulting from these insecurities are expected to be temporary,” he added.
The prolonged drought Albania has been through in the past couple of months is having a negative impact on Albania’s hydro-dependent domestic electricity generation and the agriculture sector.
With imports covering about half of the country’s electricity needs, state-run operators have already made emergency purchases worth more than €23 million only for July. Albania is expected to increase reliance on imports as the country lacks rainfall for more than two months significantly reducing wholly hydro dependent domestic electricity generation.
The prolonged drought Albania has been facing is also affecting the agriculture sector, especially corn fields after farmers have already had their wheat harvests. The major part of Albania’s agriculture land lacks irrigation systems, relying on sporadic rainfall during summer, although the country has plenty of water sources it can make use of.
Agriculture is a key sector of the Albanian economy employing about half of the country’s population, but producing only a fifth of the country’s GDP, unveiling its poor efficiency.
