The 2.26 percent shrink in the third quarter of 2013 means the Albanian economy grew by only a negligible 0.2 percent in the first nine months of 2013 and that the country is on the brink of recession and could plunge into official recession if it registers another negative growth rate in the final quarter of 2013.
By Ervin Lisaku
TIRANA, Jan. 8 – Affected by escalating crisis impacts due to Eurozone crisis and problems at home with poor domestic consumption and deteriorating public finances the Albanian economy is striving to remain at positive growth rate. Data published by the country’s Institute of Statistics this week showed the Albanian economy shrank by 2.26 percent in the third quarter of 2013 during the transition to a new government after the June 23 general elections, registering the poorest quarterly performance since 2005 when INSTAT started publishing quarterly data.
This is Albania’s third quarterly shrink in the past five global crisis years when it registered an average growth of 3 percent from 2009 to 2011 and 1.6 percent in 2012, remaining one of the bests performing economies of the region. The Albanian economy shrank by 1.5 percent in the final quarter of 2009 and declined by 0.4 percent in the first quarter of 2012, according to INSTAT.
The Albanian economy kept growing in the first three quarters of 2013 only thanks to moderate growth rates of 1.8 percent and 1.1 percent in the first two quarters of the year. The 2.26 percent shrink in the third quarter of 2013, means the Albanian economy grew by only a negligible 0.2 percent in the first nine months of 2013 and that the country is on the brink of recession could plunge into official recession if it registers another negative growth rate in the final quarter of 2013.
However, the final quarter of 2013 is expected to register positive growth rates as both the Albanian government and international financial institutions expect growth in 2013 to be at 1.2 percent and slightly accelerate to 2 percent in 2014.
All key branches of the economy registered negative growth rates in the third quarter of 2013, except for agriculture, said INSTAT.
Agriculture, which employs around half of the Albanian population but provides only around 20 percent of the GDP, continued having a positive contribution to GDP growing 2.9 percent year-on-year and by 0.2 percent compared to the second quarter of 2013.
The industry sector dominated by manufacturing which accounts for 10 percent of the GDP and the extractive branch with 2 percent, shrank by 4.6 percent compared to the third quarter of 2012 but was up by 1.7 percent compared to the second quarter of 2013. The processing industry had the main impact with 7 percent decline, said INSTAT.
The long-ailing construction sector, which has been in crisis since the onset of the global crisis in 2008, suffered another sharp shrink in the third quarter of 2013 when it declined by 10 percent year-on-year and was down by 20 percent compared to the second quarter of 2013.
The services sector which account for around 60 percent of the GDP and is made up of ‘trade, hotels and restaurants,’ ‘transport,’ ‘Post and telecommunication’ and ‘other services,’ registered negative growth rates in all its branches the second quarter of 2013.
‘Trade, hotels and restaurants’ which INSTAT values at around 22 percent of the GDP, shrank by 3.4 percent year-on-year and was down by 1.2 percent compared to the second quarter of 2013. “The biggest annual decline in this group was reported in hotels and restaurants with 13 percent and trade with 1.6 percent.”
The transport sector which INSTAT estimates at 6 percent of the GDP dropped by 4.2 percent year-on-year and but was up by 0.5 percent compared to the second quarter of 2013.
‘Post and telecommunication,’ accounting for 3.2 of the GDP declined by 1.2 percent compared to the third quarter of 2012 but was up by 0.4 percent compared to the second quarter of 2013.
Other services, which represent around 27 percent of the GDP, dropped by 0.5 percent year-on-year and but were up by 0.5 percent compared to the previous quarter. “In this group, the financial sector, the public administration, education and health positively contributed while the decline was affected by negative performance in real estate, rent and support activities such as legal, engineering and consultancy services,” says INSTAT.
Better prospects for 2014
Albania is expected to face another tough year in 2014 after the economy has been considerably slowing down in the past couple of years affected by spillover impacts from top trade partners Italy and Greece and trouble with deteriorating public finances.
With the 2013 growth expected at only 1.2 percent, Albania would register the poorest GDP growth in the past 16 years after the 1997 recession triggered by the notorious pyramid investments schemes.
Prospects for 2014 appear slightly more optimistic with international financial institutions and government expecting growth to slightly accelerate to 2 percent as top trade partners Italy and Greece are forecast to escape recession.
Sluggish domestic consumption, poor private investments, underperforming government revenue, public debt having climbed to around 70 percent of the GDP, non-performing loans at around 25 percent are some of the key wounds of the Albanian economy. In addition, poor consumer and business confidence and some increased taxes for 2014 are expected to further complicate the situation for 2014, when Albania switches to progressive taxation, abandoning its 10 percent flat tax system in force since 2008.
Lending having plunged to negative growth rates and deposits striving to maintain positive growth rates are some other indicators of the deteriorated situation. Both migrant remittances and tourism revenue have been on a downward trend since the outbreak of the global crisis in 2009.
Meanwhile, exports and foreign direct investment have been on an upward trend emerging as Albania’s key drivers of growth.
Unpaid government bills and arrears to the business community, estimated at around 172 million Euros by an audit firm, have further complicated the situation for the business community, especially the ailing construction sector which has been in crisis since 2008. The new government’s commitment to pay them off is expected to give a boost to the economy.
