INSTAT data shows the Albanian economy grew by only 0.44 percent in 2013, down from 1.3 percent in 2012, an average of 3.4 percent annually from 2009 to 2011 and pre-crisis decade of an average 6 percent.
By Ervin Lisaku
TIRANA, April 7 – Affected by escalating trouble with public finances and spillover impacts from top trade partners Italy and Greece, the Albanian economy struggled to remain at positive growth rates in 2013, facing the worst situation since the 1997 turmoil triggered by the so-called pyramid investment schemes. Data published by the country’s state statistical institute, INSTAT, show the Albanian economy grew by only 0.44 percent in 2013, down from 1.3 percent in 2012, an average of 3.4 percent annually from 2009 to 2011 and a pre-crisis decade of an average 6 percent. This marks Albania’s worst performance in the past five global crisis years and the worst since 1997 when the Albanian economy contracted by around 11 percent.
The Albanian economy escaped a possible technical recession thanks to positive growth rate in the final quarter of 2013 after having shrunk by 2.5 percent in the third quarter of the year during the transition to a new Socialist Party-led government following the June 2013 elections.
INSTAT data show the economy grew by 1.1 percent year-on-year in the final quarter of 2013 with several services branches, the long-ailing construction sector and industry as the key drivers of growth.
Transport and other services were the only branches which failed to recover in the final quarter of 2014. In the final quarter of 2013, the services sector which accounts for around 60 percent of the GDP and is made up of ‘trade, hotels and restaurants,’ ‘transport,’ ‘Post and telecommunication’ and ‘other services,’ was affected by a sharp 28 percent shrink in the transport branch and a slight 1.76 percent decline in “other services.”
‘Trade, hotels and restaurants’ which INSTAT values at around 22 percent of the GDP, grew by 3.12 percent year-on-year and was up by 4.06 percent compared to the third quarter of 2013. “In this group, trade grew by 7.04 percent year-on-year while hotels and restaurants shrank by 16.71 percent,” INSTAT said.
The transport sector which INSTAT estimates at 6 percent of the GDP dropped by 27.92 percent year-on-year and was also down by 15.41 percent compared to the third quarter of 2013. The bankruptcy of leading Belle Air airline is believed to have had a major impact in the sharp shrink of the transport sector in the final quarter of 2013.
‘Post and telecommunication,’ accounting for 3.2 percent of the GDP grew by 8.36 percent year-on-year and was up by 5.82 percent compared to the third quarter of 2013.
Other services, which represent around 27 percent of the GDP, dropped by 1.76 percent year-on-year but remained unchanged compared to the previous quarter. “In this group, the public administration, education and health had a positive contribution while the decline was affected by poor performance in the financial, real estate sectors, rent and support activities such as legal, engineering and consultancy services.”
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 1.23 percent year-on-year and by 0.67 percent compared to the third quarter of 2013. In the third quarter of 2013 when the economy shrank by 2.26 percent, revised upward to 2.5 percent in the new publication, agriculture was the only sector to register positive growth.
The industry sector dominated by manufacturing which accounts for 10 percent of the GDP and the extractive branch with 2 percent, grew by 7.18 compared to the final quarter of 2013 and was up by 0.64 percent compared to the third quarter of 2013.
The long-ailing construction sector, which has been in crisis since the onset of the global crisis in 2008, registered a turning point in the final quarter of 2013 when it grew by 3.66 percent year-on-year and was up by 14 percent compared to the third quarter of the year.
Speaking to reporters, INSTAT’s director Gjergj Filipi described 2013 as a tough year which should be seriously analyzed to prevent what happened and react faster to the crisis.
The growth rate is lower even compared to recent forecasts by the government and the IMF which expected Albania to grow by 0.7 percent in 2013 before recovering to 2 percent in 2014.
“Albania successfully avoided recession in the aftermath of the global crisis and suffered a milder growth shock than neighboring countries. Recently, however, the economy has shown signs of protracted weakness and macroeconomic imbalances have widened,” says the IMF with which government has signed a new deal supported a three-year Euro 331 million loan which will be used to pay off accumulated unpaid bills to the business community, estimated at around 5 percent of the GDP.
Economy recovering in early 2014
A double-digit rise in VAT and a recovery in imports of machinery, equipment and spare parts in early 2014 hints the Albanian economy is heading toward recovery after growth decelerated to only 0.4 percent in 2013.
Finance Ministry data show the value added tax, which is levied at a fixed 20 percent rate on almost every product and service rose by 17.6 percent in the first two months of 2014, unveiling signs of a recovery in domestic consumption which has been the traditional key driver of the Albanian economy.
Imports of machinery, equipment and spare part, an item which indirectly measures private investments, unveils Albania’s private sector, which accounts for 80 percent of the GDP and provides the overwhelming majority of employment, is slightly more optimistic this year.
INSTAT data shows imports of this group rose by 9 percent to around 9.3 billion lek (Euro 65 million) year-on-year in the first two months of 2014.
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 24 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 switched 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.
Albania’s escalating trouble with public finances has also been reflected on the latest rating by Standard & Poor’s, one of the top three international agencies, which has lowered Albania’s long-term sovereign credit ratings to ‘B’ from ‘B+ with a negative outlook.
The new Socialist Party-led Albanian government, which took office in September 2013, has adopted a new fiscal package which starting January 2014 switches Albania to progressive taxation, lowering personal income tax for low and middle-income households but increasing corporate income tax for mid-sized and big businesses to 15 percent, a move strongly opposed by the business community.
International financial institutions have suggested that supporting and strengthening the fragile recovery and growth in Albania requires a shift from domestic demand driven growth to export-oriented growth.
In its 2013-2017 programme, the Socialist Party-led government recognizes the limitations of the development model based on a remittances-fuelled construction boom and raw material exports, and aims to shift the focus to new sources of growth by identifying manufacturing, energy, tourism and agribusiness as priority areas. The programme also pledges fiscal discipline and the payment of accumulated public arrears, estimated at around 5 percent of the GDP.
Opposition doubts growth
The opposition Democratic Party considers the latest GDP publication by INSTAT as manipulated. Democratic Party leader Lulzim Basha says the drastic shrink by around 28 percent in the transport sector “is the clearest indicator of the deepening of the crisis even in other sectors which INSTAT, now controlled and politically manipulated by the Prime Minister is trying to represent in favour of the new propaganda.”
“The volumes of transport are the clearest picture of the volume of production, circulation and other factors of the economy. The decline in this sector is a clear indicator that apart from direct government barriers, the fact that less was produced and transported has also influenced,” said Basha this week in a meeting with Democratic Party MPs.
