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
TIRANA, Feb. 27 – The central bank says the Albanian economy will remain conditioned by the performance of top trade EU partners, the nature of fiscal policy and productivity. Introducing the monthly monetary policy report this week, governor Ardian Fullani said the Albanian economy is expected to continue growing below its potential even in 2013, when exports are forecast to grow at a slower pace compared to 2012. Meanwhile, internal demand is also expected to remain sluggish because of hesitation by consumers and businesses to increase consumption and make new investments.
Both Italy and Greece are expected to register negative growth rates even in 2013, according to international financial institutions. The IMF expects the Italian economy to shrink by 2.3 percent in 2012 and 0.7 percent while Greece is expected to undergo another year in recession.
The two neighbouring countries account for around 50 percent of Albania’s trade exchange, being the top investors in Albania and the overwhelming source of migrant remittances.
“Albania’s strong trade, investment and remittance ties to Greece and Italy, both of which face continued economic gloom, are likely to continue to constrain growth in the coming year, and the high level of public debt, at close to the statutory limit of 60 per cent of GDP, will limit the room for fiscal manoeuvre,” warns London-based EBRD.
Central bank governor Ardian Fullani says the Bank of Albania has prepared a package of measures focusing on three main pillars which will support the banking sector, ease lending and give a new impetus to the country’s ailing economy.
Governor Fullani says the central bank expects this year’s economic growth to be similar to that of 2012, which government has recently revised downward to only 1.5 percent compared to an overoptimistic 4.3 percent at the beginning of 2012.
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.
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.
Key rate unchanged
With lending sharply slowing down to only 2 percent in 2012, the central bank says it will continue following a stimulating monetary policy as long as inflation pressures remain low.
In late January 2013, Albania’s central bank made a new cut to the key interest rate taking it to a historic low of 3.75 percent in an effort to give a new impetus to the country’s ailing economy suffering crisis impacts from the Eurozone partners, and problems at home with sluggish consumption, high levels of public debt, and a sharp drop in lending as bad loans have reached a record 22 percent. Governor Fullani said the move was aimed at increasing the sluggish consumption and investments by easing lending in the national currency.
Low inflation pressures have allowed the Bank of Albania to cut the key interest rate by 1.5 percentage points to a historic low of 3.75 percent since Sept. 2011 in an effort to stimulate the economy but the moves have been poorly reflected in lower loan interest rates and an increase in investments. Bad loans at a record 22 percent, tighter lending standards and falling demand for new loans by both businesses and consumers have led to credit growth dropping as low as 4 percent at the end of 2012 compared to record high growth rates of 30 to 40 percent in the pre-crisis period until 2008, and a moderate growth of 10 to 12 percent even from 2009 to 2011.
Albania’s annual inflation rate dropped to 2 percent in 2012, down from 3.5 percent in 2011. Albania’s central bank itself estimates that by preserving the inflation rate around the 3 percent rate, the monetary policy will continue having positive contribution to the development of the Albanian economy.
T-bill yields
The latest cut to the key interest rate by 0.25 percent to a historic low of 3.75 in the past few weeks has been immediately reflected in lower interest rates on government debt. Twelve-month T-bill yields dropped to 6.34 percent, down from 6.42 percent in the latest Bank of Albania auction this week while 3-month T-bill yields slightly fell to 5.05 percent down from 5.08 percent. The central bank auctioned 12.7 billion lek in an auction held on February 27 characterized by a considerable number of competitive bids.
Yields on 12-month T-bills dropped to 6.53 percent in the latest January 29 auction, down from 6.6 percent previously, and a record 7.5 percent in March 2012.
