BoA: Domestic economy to suffer the impact of global stock market

TIRANA – Situation in the international financial market constitutes a risk for the Albanian economy due to the huge dependency of the country on imports. The evaluation was published during the latest report from the Central Bank of Albania , CBA. According to the monitoring office of the bank, the foreign environment carries a certain potential risk that should be always kept under watch.
However, notes the report, the materialization scale of such risks is diminishing. CBA points at the falling inflation as one of the main indicators. In July, inflation was estimated at 3.7%, marking the 4th consecutive month of a falling inflation after the record high of 4.6% in March. Given the recent records, CBA will not change the present interest rates for ALL at 6.5%. Finally, the report estimates that inflation will keep floating within the maximal prediction of 4% for the rest of the year.
Yet, economics is not ceteris paribus. If inflation shows promise, increase in imports tells another story. Imports increased at 26% last year and another 15.6% in the first half of 2008. This is way above the 13.5% average increase in the last decade. In total, Albanians spent 3.14 billion Euros on imports in 2007 and 1.7 billion in the first half of 2008. Trade deficit increased at 2.33 billion Euros.
Usually, increase in imports would reflect the spending power of the consumer, therefore respecting the theory of a self-regulating market. However, a good part of the increase was due to forced imports on oil and energy, this being an external impact from that of the market. Remittances from immigrants would balance more than half of the deficit in the past years, but the latest increase has completely overblown such balance. As a result, accrued deficit increased at 890 million Euros, a freak result this compared to the past. It seems that Albanians have paid the increase in imports by saving less and borrowing more. The impact is felt in the exchange rates, where, according to the Economic Institute of Vienna, LEK has struggled to improve its position against the EURO. Overall, forced increase in imports accompanied with increase in borrowing and diminishing savings make for a worrisome future in the Albanian economy. At best, it makes for stagnation.