TIRANA, April 9 – Albania is expected to lose 1.4 percent of GDP in 2020, due to the travel restrictions and temporary measures to contain the spread of COVID-19, according to the World Bank’s latest Spring report. Manufacturing, trade, tourism and other non-tradable services have been hit the most as a result of these measures. However, reconstruction and a return of electricity production to normal levels should partially compensate for the decline in other activities.
The World Bank reports that tourism and travel are likely to face both a demand shock from the pandemic across the EU as well as a supply shock, as labor supply declines due to social distancing and government imposed measures.This is the second time in a short time period that tourism has been affected significantly, following last year’s devastating earthquake. Most travel agencies have reported that all bookings for the summer have been cancelled, both by foreigners and Albanian citizens.
Should the pandemic be controlled by the end of the second quarter, reconstruction, a rebound of activity in the EU, and tourism are likely to boost growth starting from the fourth quarter in 2020 through the medium-term.
Moreover, WB states that the Public debt is expected to increase to 71.5 percent in 2020 as the deficit increases to 3.9 percent of GDP to counteract the loss in income due to the pandemic and support post-earthquake reconstruction. In this scenario, poverty is projected to increase slightly by about 0.4 percentage points and decrease in 2021, but the outcome depends on the duration of the economic measures and the repercussions on employment and earnings.
According to the World Bank, Albania is vulnerable to spiking risk premia in response to investors’ flight to quality behavior and might find it difficult to get external financing. While ample liquidity in the domestic banking system might mitigate immediate financing risks, larger domestic financing crowds out private sector investments. Weaker global demand reflected in lower commodity prices and a continuous decline in oil prices would also hit the country’s extractive industry, with important fiscal and economic repercussions.
Moreover, a prolonged EU recession in the event the pandemic persists until 2021 would affect Albanian exports, remittances, and FDI negatively. The domestic demand would remain suppressed if the pandemic persists. A larger and persistent drop in tourism in the aftermath of the earthquake could also affect growth negatively. A slower-than expected pace of reforms would also affect economic and social prospects. Implementation delays in the reconstruction program could fuel domestic uncertainty and further contract consumption.
