Albania’s prospects improve as Greece escapes 6-year recession, Italy heads toward recovery

Prospects for 2015 appear rather more optimistic as the country’s top trade partner, Italy is expected to register positive growth of 0.8 percent overcoming its recession in the 2012-2014 period, according to IMF forecasts.
TIRANA, Nov. 19 – Greece’s escape of its crippling six-year recession with two consecutive positive growth rates in the second and third quarter of this year is good news for the economy in Albania where the neighbouring country is the second top trade partner and the largest foreign investor. However, three consecutive quarterly negative growth rates in Italy, the country’s top trade partner and one of the key foreign investors, unveils that the Albanian economy continues suffering negative impacts from these two eurozone economies, which are host to around 1 million Albanian migrants and the main source of migrant remittances.
Prospects for 2015 appear rather more optimistic as Italy is expected to register positive growth of 0.8 percent overcoming its recession in the 2012-2014 period, according to IMF forecasts.
Prospects for Greece are even more optimistic as the neighbouring country is expected to post positive growth of around 0.6 percent in 2014 escaping its worst-ever recession and accelerate to 2.9 percent in 2015.
Greece has recently emerged among the fastest-growing eurozone economies after growing by 0.4 percent and 1.4 percent in the second and third quarters of this year. However, experts estimate that it will take years for Greece to recoup the economic ground during its worst-ever recession that has made its economy around a quarter smaller compared to the onset of recession in summer 2008.
Italy continued to contract in the third quarter of this year registering a 0.4 percent drop, suggesting the eurozone’s third largest economy continues to lag the rest of Europe as it struggles to reform its economy.
In its 2015 budget and fiscal package, the Albanian government expects the recovery in both Italy and Greece to have a positive impact on the Albanian economy as exports have slowed down to 6 percent this year affected by lack of hydro-depended electricity exports.
“Several external factors will have an important impact such as the recovery in the Eurozone and especially in Greece as well as some internal factors such as the increase in FDI especially in the energy sector, the rise in exports and obvious progress in important investment projects,” says the Finance Ministry.
“Economic growth under conditions of fiscal consolidation is expected to be supported by the improvement of the business climate, the expansion of lending to the economy by replacing government’s internal borrowing with financing from international markets, an increase in public investments (especially in infrastructure), an accommodative monetary policy in the mid-term and a reduction in external risks (the economic recovery in Italy and Greece) and the accommodative monetary policy of the European Central Bank,” says the ministry in its reports on the 2015 budget and fiscal package.
The two neighbouring countries account for around 50 percent of Albania’s trade exchange, being the top investors in Albania and the overwhelming source of migrant remittances.
Spillover impacts
“Albania’s strong trade, investment and remittance ties to Greece and Italy, both of which face continued economic gloom, are likely to continue to constrain growth, and the high level of public debt will limit the room for fiscal manoeuvre,” London-based EBRD has earlier warned.
A huge wave of migrants returning home, lower trade exchanges, investments and remittances are some of the most obvious impacts that the economic crisis in neighbouring Greece, the top investor and second most important trade partner, has had in Albania in the past six years, according to a study conducted by the Albanian Centre for Competitiveness and International Trade (ACIT). The study published in late 2012 found that around 180,000 Albanian migrants, or 18 to 22 percent of the total Albanian migrants in Greece, returned home during the past five years.
Once the second destination of Albanian exports, Greece now ranks only the sixth most important. However, Greek businesses are present in almost every sector of the Albanian economy, including strategic ones such as telecommunications, the banking system, energy, industry, construction, trade and tourism, significantly contributing to the country’s economic growth.
After six-years of recession expected to come to an end only in 2014, neighbouring Greece has regained its top foreign investor position in Albania, overtaking Canada which emerged as a top foreign investor in the past couple of years due to huge investments in oil and mining.
Neighbouring Greece, whose position as Albania’s second top trade partner sharply weakened during the past six years, registered a surprise increase in foreign direct investment in 2013 with its FDI stock exceeding 1 billion euros, according to annual Bank of Albania data.
Data shows Greece increased its FDI stock to 1.088 billion Euros in 2013, up from 782 million euros in 2012, according to revised BoA data.
Meanwhile, trade exchanges with Italy, the traditional top trade partner for Albania have not been affected by the crisis there due to the recession being milder and the economy being one of the biggest in the Eurozone.
Italy is Albania’s top trade partner with 50 percent of total exports and 30 percent of imports. More than 80 percent of footwear and garment products manufactured in Albania, which are the country’s main exports, go to Italy.
Italy increased its FDI stock to 503 million euros in 2013, up from 457 million euros in 2012, ranking the third most important foreign investor. Italian investments in Albania are mainly focused on garment and footwear manufacturing, energy, banking, health.
According to Italy’s Confindustria lobby group, some 300 Italian companies operate in Albania, mainly in the footwear and garment manufacturing.
Affected by crisis in Italy and Greece where around 1 million Albanian migrants live and work, migrant remittances have almost halved in the past seven years due to the crisis in these two host countries which are also Albania’s top trade partners.
Bank of Albania data show migrant remittances hit a record low of 497 million euros in 2013, down from 675 million euros in 2012 and a historic high of 952 million euros in 2007 just before the outbreak of the global financial crisis. At only 497 million euros, migrant remittances registered a record low for the past decade.
On a falling trend since the 2008, the sharp cut in migrant remittances has also influenced on the slowdown of the Albanian economy in the past five years. The cut in remittances has also influenced on the crisis in the still ailing construction sector.
Italy, the destination of more than 50 percent of Albanian exports, registered negative growth rates of 1.9 percent in 2013 and 2.4 percent in 2012, after modest positive growth rates in 2010 and 2011 and recession in 2008 and 2009.
Meanwhile, Greece, which currently remains Albania’ second most important trade partner only for imports has been in its worst ever recession since 2008 and is expected to register modest growth only this year.