Consumers expect the unemployment rate and prices to further grow in the next six months
TIRANA, April 18 – Albania’s Economic Sentiment Indicator (ESI), measuring both consumer and business expectations dropped by 7.3 percent in the first quarter of this year, extending the gap to 14.7 percent below its long-term historical average. The data made available in the latest Bank of Albania survey show the deterioration in the ESI was a result of the ongoing drop in confidence by the services sector and the consumers. Meanwhile, confidence in the industry and crisis-hit construction sector grew slightly but was unable to balance the overall index.
Survey data show the services sector employing the majority of people in Albania saw a huge 8.6 percent drop in its confidence index during the first quarter of 2010, declining to 9.6 percent below its historical average. Assessments of their employment and overall economic and financial situation registered decreases of up to -13.9 percent. The domestic political climate, law and order and internal security were described as factors negatively contributing to the economic activity of the services sector. Relations with banks was the only factor which improved.
The ongoing political crisis since the June 2009 general elections has also been described as a key factor preventing economic development by international rating agencies such as Standard and Poor’s which says that that the extreme polarization of the political climate has seriously damaged the government’s ability to undertake effective policies and reforms. The company has left unchanged the “B+” evaluation, with a steady perspective on the government’s debt.
Demand in the services continued dropping by 7.7 percentage points with the capacity utilization rate at 69.8 percent, around 2.3 percent lower than the previous quarter and 5.7 percentage points below its historical average. The expectations of services businesses about demand, employment and investments for the next six months remain in decline.
The consumer confidence index also continued its falling trend for the third quarter in a row, dropping by 3.1 percentage points during the first quarter of 2011, and remaining 1 percent below its long term historical average. The drop was mainly a result lower consumer confidence about big purchases and the deterioration in their current financial situation which fell by 6.4 percent and 6.2 percent respectively.
Consumers’ assessment about the country’s economic and financial situation registered a drop with the cost of living reported to have increase compared to the first three months of 2010.
Consumers expect the unemployment rate and prices to further grow in the next six months. Latest data show the official unemployment rate remained at 13.5 percent at the end of 2010 while annual inflation rate in February and March 2010 was at 4.5 and 4.3 percent exceeded the central bank’s target by 0.5 and 0.3 percent, respectively.
Meanwhile, confidence in the crisis hit construction sector grew by 3.4 percent during the first quarter of 2011, registering an improvement for the second quarter in a row, but remaining 4.7 percent below its long-term historical average. The increased optimism in this sector was a result of higher production and demand despite the deterioration in the employment.
Infrastructure, relations with banks and the financial sector as well as legal and institutional framework are reported to have improved, while internal political situation remains an obstacle for construction companies to carry out their normal activity.
The capacity utilization rate in the first quarter of 2011 was at 61 percent, 6.6 percent below its historical average. The construction sector’s expectations about the second quarter of 2011 dropped compared to the final quarter of 2010, increasing insecurity about the continuance of confidence boost.
Meanwhile, the industry sector also continued its increase in confidence. Data show confidence in this important sector grew by 2.8 percent in the first quarter of 2011 mainly because of higher assessments of industrial production despite lower employment rates. The presence of corruption and informal economy were estimated as the most important factor negatively contributing to normal performance of these businesses. Internal and external demand is on the rise with the capacity utilization rate up by 2 percent to 70.7 percent compared to the final quarter of 2010. Around 85.6 percent of industry businesses say the current production levels are enough considering the slight decrease in their contracts. Some 21.7 percent of industry businesses are reported to have made new investments during the past 6 months, mostly in replacing damaged machinery and making technological improvements and less in increasing production capacities.
Latest data published by the Albanian Institute of Statistics show the country’s GDP grew by 5.4 percent in the final quarter of 2010 with industry and trade as the key sectors contributing to the growth. Meanwhile, the construction and post-telecommunication sectors continued suffering registering negative growth rates.
INSTAT data show the industry sector, dominated by the textile and shoe manufacturing but also electricity, producing Albania’s largest exports, registered the biggest increase in the final quarter of 2010 growing by 24.4 percent year-on-year and 6.7 percent compared to the third quarter of 2010.
Second came the “trade, hotel and restaurant” group which grew 12.8 percent y-o-y, but only 1.4 percent compared to the previous third quarter of 2010. The transport sector ranked third for its y-o-y growth despite shrinking by 1 percent compared to the third quarter of 2010. The services sector grew 5.7 percent compared to the final quarter of 2010 and 1.1 percent compared to the third quarter of 2010
The construction sector, once the main driver of the Albanian economy, continued remaining in crisis, shrinking by 14.8 percent year-on-year and 3.7 percent compared to the third quarter of 2010.
