The reorientation of consumption toward domestic production, apart from helping the economic growth would lower premium risks for the economy and help the inflow of foreign capital, says the report
TIRANA, Aug. 7 – Challenging internal and external environment characterized by high insecurity preventing consumption and investments and very careful behaviour by the banking system in financing productive activities will continue affecting the Albanian economy even in the mid-term, the central bank says. In the latest monetary policy report, the Bank of Albania says that after the slight shrink in the first quarter of this year, the Albanian economy will register positive growth rates in the next three quarters but external demand will have minor impact on the GDP as key trade partners Italy and Greece face recession.
The report notes that Albanian exports have benefited from their rising competitiveness in terms of quality and costs and a better geographical distribution in the past few years.
The reorientation of consumption toward domestic production, apart from helping the economic growth would lower premium risks for the economy and help the inflow of foreign capital, says the report. Internal demand is expected to continue being influenced by some persistent factors related to saving trend and insecurity about investments, factors which cannot change in the short-term. For the second half of 2012, the Bank of Albania expects financial conditions to ease and the monetary policy to transmit its impacts on the real sector which will create a more stimulating environment to increase consumption and investments in the country.
The second half of 2012 will also witness a higher contribution by the public sector in accordance to expenditure plan and the performance of the budget deficit.
The Bank of Albania says perspectives about the economic development remain positive. They are based on the productivity and flexibility of the labour market, the increase in human capital, the relatively low use of financing, and the increasing attractiveness of the Albanian economy.
“Firstly, the structural reform has to be further strengthened. It should be based on broad political and social consensus and toward a model of economic growth that proves effective in fulfilling this vision and the concrete measures that need to be followed. These reforms should take into consideration the new context of global and regional markets as well as the increased rising competition by developing economies toward attracting foreign capital and penetrating new markets. Secondly, reliable macroeconomic policies anchored in clear rules and time resistant and supported in measurable objectives of macroeconomic stability will continue remaining a pre-condition for the sustainable and long-term growth,” says the Bank of Albania.
Lower domestic consumption, stagnating exports, some of the key industries in crisis, lending and deposits growth rates slowing down and government revenues far below targets are some of the symptoms of the ailing Albanian economy in the first half of 2012 which international financial institutions have warned will see Albania register growth rates between 0.5 to 1.5 percent. Domestic consumption, the key driver of the Albania economy continues struggling as shown by the performance of value added tax and excise tax. VAT, which indirectly measures consumption, grew by a mere 1.4 percent while the excise tax levied on so-called luxury products such as fuel, tobacco and alcoholic beverages was down by 0.4 percent compared to the first half of 2011. INSTAT data show total exports during the first half of this year grew by 2.1 percent while imports were down by 2 percent. “Albania’s strong trade, investment and remittance ties to Greece and Italy are likely to continue to constrain growth in the coming year, while public debt is close to the statutory limit of 60 per cent of GDP, limiting the room for fiscal manoeuvre,” says the EBRD in its latest report.
