Economic growth in 2013 is expected to continue remaining below its potential although benefitting from monetary and fiscal stimuli, says the central bank
TIRANA, Feb. 13 – The Albanian economy is expected to register gradual improvement in the next two years but its progress will be subject to increased growth risks from its top trade partners Italy and Greece as well as sluggish consumption, says the Bank of Albania monetary policy report for the final quarter of 2012.
The main trends in the mid-term include the gradual narrowing of production gap, keeping inflation in line to the Bank of Albania 3 percent target, the gradual correction of the current account deficit and the preservation of a stable financial environment. Financial intermediation is expected to increase although at lower rates compared to the historical average, says the central bank.
Having lowered its GDP forecast for 2012 to only 1.5 percent, the Albanian government expects growth to accelerate from 3.1 percent in 2013 to 4.1 percent in 2015, twice higher compared to what international financial institutions have forecast.
Economic growth in 2013 is expected to continue remaining below its potential although benefitting from monetary and fiscal stimuli, says the central bank.
Consumption and private investments are expected to generate positive contribution in economic growth. Both Albanian businesses and consumers have sound balance sheets thanks to an increase in savings by households and businesses’ flexibility in controlling labour costs.
The increase in savings and the preservation of the labour force constitute positive prospects to preserve the growth potential in the mid-term. However, consumption in 2013 will continue being under the influence of negative perception of income risks, the slow recovery of the monetary intermediation and uncertain cash inflows from non-residents.
In the short-term, the current drop in the labour productivity is a barrier for the quick reflection of higher production into an increase in employment and expansion in consumption. Private investments will also continue being influenced by high risk perceptions and low financial intermediation. The restructuring of the economy toward industry activities and other manufacturing activities demands the reallocation of financial funds in the economy and constitutes an extra factor for the low levels of credit and investments, says BoA.
The economic recession in partner countries will continue conditioning the increase of exports. Despite the uncertainty and problems with preserving a high growth rate for exports, the tendency of replacing imports with domestic production is expected to have a positive impact on the narrowing of the trade deficit and economic growth. Under the spending plan, the public sector is expected to generate a direct positive impact in 2013 but the extent of the further transmission of this stimulus will be conditioned by the risk perception and the reaction by financial markets. The possibility of monetary stimulus in the long-term is limited by the need for further fiscal consolidation. The adoption of a fiscal rule which reconfirms the commitment of the public sector toward the stability of the public debt would help lower risks premiums in the economy and create more space for the increase of long-term private investments.
The financial sector is expected to gradually recover to its growth pace in the mid-term in line with the expected performance of the aggregate demand. Credit to the economy will be supported by the good liquidity situation in the banking system, the stable accumulation of private savings and the better capitalization of the banking sector. However, lending growth rates are expected to remain at low levels in 2012 with slight improvements compared to the 2012 progress. The tightening of lending standard reflects higher risks to the economy as a whole and specific sectors, making the reflection of the monetary stimulus more difficult. The trend of lending in the domestic currency is a stable phenomenon, as a more realistic response to currency exchange risks by private agents. The regulation of the lending structure, although in the short-term could prevent its quick growth, is regarded in the long-term as a necessary element to increase the efficiency of the monetary policy action and increase the resistance of the Albanian financial system. Factorizing lower lending levels, a higher financing of the fiscal deficit and lower inflows from abroad, the deposit growth rate is expected to continue at a same pace compared to 2012 in the short term.
Considering developments in the real, monetary and external sectors, inflation rate is expects to remain in line with the Bank of Albania 3ѱ percent target. Under these conditions, the monetary policy is expected to preserve its stimulating nature even during 2013. This nature will be reflected in preserving the key interest rate at low levels and supplying the banking system with liquidity. It will create premises for the reduction of interest rates in lek-denominated financial instruments supporting the increase of consumption and growth in the country.
With an average growth rate of 1.5 percent during the first nine months of 2012, the Albanian economy is reflecting clear signs of crisis from the Euro area partners and developments at home where domestic consumption and exports remains sluggish, and public debt now beyond the previous legal ceiling of 60 percent of the GDP poses a real threat to the country’s macroeconomic stability.
