At 1.7 percent, Albania registered one of the poorest first quarter performances among eight candidate and potential candidate countries better only compared to Iceland, shows a European Commission report
TIRANA, July 8 – Although remaining one of the best performing enlargement economies in the global crisis years of 2009 to 2012, the Albanian economy is showing sluggish signs of recovery and has been overtaken by most EU aspirants in the first quarter of this year, shows a European Commission report.
At 1.7 percent, Albania registered one of the poorest first quarter performances among eight candidate and potential candidate countries better only compared to Iceland. First quarter GDP growth rates in EU candidates Serbia, Macedonia, Turkey and Montenegro ranged from 2.1 percent to 4.3 percent, according to a quarterly report by the European Commission’s Economic and Financial Affairs Directorate-General. The Commission did not provide data about potential candidate Bosnia and Herzegovina where GDP is estimated to have overcome the negative growth rate in 2012, and Kosovo, where the first quarter growth is estimated at 2.1 percent.
The Albanian economy grew by an average of 3.4 percent annually from 2009 to 2014 registering higher growth rates compared to all EU aspirant countries except for Turkey and Kosovo.
“While revenue shortfalls often explain slippages in budget execution, increased expenditures have also played a significant role in some countries. Thus, in the run-up to the general elections, expenditures increased by 13.3 percent in Albania while revenues dropped by 0.2 percent,” says the European Commission report. As a result, the budget deficit in the first five months exceeded last year’s comparable figure by some 114 percent and was almost 50 percent higher than planned. The deficit already amounts to some 2.7 percent of estimated annual GDP, whereas the government targets a budget gap of 3.5 percent of GDP for the year as a whole.
Economic activity generally picked up in the first quarter of 2013 and growth is expected to remain positive in April-May, after the slowdown in 2012 and even a recession in four Western Balkan economies. GDP growth turned positive in the first quarter of 2013 in all the Western Balkan economies which had experienced negative growth in 2012, namely Serbia, Bosnia and Herzegovina, Montenegro and the former Yugoslav Republic of Macedonia. Growth differentials are, however, not negligible, ranging from 2.1 percent year on year in Serbia to 4.3 percent in Montenegro.
The European Commission expects growth in Macedonia, Montenegro, Serbia and Iceland to range from 1.5 percent to 1.8 percent and at 3.2 percent in Turkey while no forecasts have been made for potential EU candidates Albania, Bosnia and Kosovo. The World Bank and the IMF expect Albania to grow at 1.8 percent in 2013.
Weak demand preventing growth
Available information suggests that the factors behind the slowdown of Albania’s growth in the fourth quarter of 2012 continued to exert their influence. Domestic private demand remained weak, reflecting consumers’ and businesses’ reluctance to spend, low growth of disposable income (also due to a fall in remittances) as well as continuing tight credit conditions, says the Commission’s report. On the other hand, foreign demand contributed positively to growth, as suggested by the further narrowing of the trade deficit.
According to Bank of Albania data, the improvement in the economic sentiment indicators, which had started at the end of 2012 following a fall in four consecutive quarters, persisted in the first three months, albeit the index remains markedly below its long-term average.
In the first three months of 2013, the current account deficit continued to improve for the fifth consecutive quarter, narrowing by 26 percent year-on-year to EUR 215 million.
In the first quarter, annual consumer price inflation picked up slightly to 2.5 percent but remained at the lower limit of the central bank target range.
Reflecting tight credit conditions as well as subdued demand, bank lending continued to slow down for the 17th consecutive month and virtually came to a halt in May, when it rose by only 0.3 percent annually, compared to 9.4 percent a year earlier. In the first quarter as a whole, bank lending expanded by 1.6 percent year-on-year, against 11.2 percent in the same period last year.
The share of non-performing loans (NPLs) as a percentage of total loans continued to climb in the first three months and reached 24 percent, up from 22.8 percent in the previous quarter. The capital adequacy ratio rose to 16.8 percent in the first quarter from 16.2 percent in the previous three months, staying comfortably above the BoA’s minimum requirement of 12 percent.
In 2012 Albania handled crisis better
At 1.6 percent in 2012, Albania registered its lowest annual GDP growth rate since the collapse of the notorious pyramid schemes in 1997, and almost half of the average growth rate during the global crisis year from 2009 to 2011. However, the Albanian economy continued remaining one of the best performing among EU-aspirants despite its growth rate slowing down even compared to the onset of the global crisis in 2009 when at 3.3 percent it became one of the few regional economies to register positive GDP growth rates.
The previous quarterly report published by the European Commission Economic and Financial Affairs Directorate-General shows the Albanian economy performed better than most aspiring EU countries expect for Turkey and Kosovo and was on par with Iceland in 2012.
Macedonia, Montenegro, Bosnia and Herzegovina, Serbia and Croatia plunged into recession in 2012 after having recovered in 2011.
While Albania’s unemployment rate at 13.3 percent, inflation rate at 2 percent, the budget deficit at 3.4 percent of GDP are among the best in the region, the current account balance at 10.5 percent of the GDP and the ratio of non-performing loans at 24 percent are the highest among the nine EU candidate and potential candidate countries. Albania’s public debt at 61.5 percent of the GDP at the end of 2012 was the highest in the region along with Serbia at around 60 percent.
At 99 percent of the GDP, Iceland has the highest public debt levels among EU aspirants.
The European Commission report notes Albania’s budget deficit at 3.4 percent of the GDP in 2012, 0.4 percent higher than the forecast, led to the call of state guarantees and a wide overrun.
At 2.2 percent Turkey, posted the highest GDP growth rate in 2012, followed by Albania and Iceland at 1.6 percent respectively. Negative GDP growth ranged from -0.3% in the former Yugoslav Republic of Macedonia to – 0.5% in Montenegro and Bosnia and Herzegovina and to respectively -1.7% and -2% in Serbia and in Croatia.
While Croatia already joined the EU this month, only Albania, Bosnia and Herzegovina and Kosovo remain potential EU candidates with all others having already obtained EU candidate status.
Recent decisions to remove VAT on cement and steel used for the construction of hydropower plants and to introduce a non-taxable minimum of ALL 30,000 per month for personal income might put further strain on the revenue side, warns the EC report.
In late 2012, the statistical office of the European Union, Eurostat, revised downward Albania’s GDP per capita expressed in purchasing power standards (PPS) ranking the Balkan country on the bottom of the 37-country list on par with Bosnia and Herzegovina.
In its latest report, Eurostat ranked Albania’s GDP per capita in PPS at 30 percent of the EU 27 average, down from 31 percent in mid-2012 based on revised purchasing power parities, and the latest GDP and population figures. At 70 percent below the EU 27 average, Albania’s 2011 GDP per capita is also 5 to 22 percent below regional EU candidates Serbia, Macedonia, Montenegro and Turkey and 31 percent below acceding Croatia.
