The central bank estimates that the performance of the Albanian economy in the short run will depend on the progress of private investments and consumption, two components of aggregate demand which have been facing sluggish growth in the past couple of years.
TIRANA, May 7 – The first quarter of the year hints 2014 could be a turning point for the Albanian economy as indicators of growth, business perceptions and the performance of financial markets is recovering faster than we expected, says central bank governor Ardian Fullani in the monetary policy report for the first quarter of the year.
“These developments coupled with the expected recovery of the global economic environment, the reduction of insecurity and the improvement of the business climate in Albania, the pursue of macroeconomic stimulating policies and the acceleration of structural reforms creates better conditions for a gradual recovery of the economy during the coming quarters,” says the Bank of Albania in its report.
The central bank estimates that the performance of the Albanian economy in the short run will depend on the progress of private investments and consumption, two components of aggregate demand which have been facing sluggish growth in the past couple of years.
The expected improvement of the financing conditions, the improvement of the balance sheets as a result of payment of government arrears and the reduction of insecurities will offer the right stimuli for a good performance in the coming quarters. However, the recovery of consumption and private investments will require a much more courageous behaviour and bigger readiness to take risk by economic agents, says the central bank.
The ability of the Albanian economy to preserve sustainable growth in exports and diversify the basis of exported goods will be a key factor in securing economic growth in the mid and long-term. In the long run, the increase in the competitiveness of the Albanian economy, the diversification of the growth sources and integration in regional and global markets will be preconditions for sustainable economic growth, notes the central bank.
The report says the Albanian economy continued performing below potential even in the first quarter affected by sluggish aggregate demand.
“Financially, the sluggish economic growth puts pressure on the increase of the budget deficit and public debt and creates financial difficulty for businesses,” says the bank.
Public finances registered a significant recovery in the first quarter of this year with VAT, an indicator of domestic consumption rising by 20 percent and imports of machinery, equipment and spare parts, an indicator of private investments, rising by 4 percent.
Affected by escalating trouble with public finances and spillover impacts from top trade partners Italy and Greece, the Albanian economy struggled to remain at positive growth rates in 2013, facing the worst situation since the 1997 turmoil triggered by the so-called pyramid investment schemes. Data published by the country’s state statistical institute, INSTAT, show the Albanian economy grew by only 0.44 percent in 2013, down from 1.3 percent in 2012, an average of 3.4 percent annually from 2009 to 2011 and a pre-crisis decade of an average 6 percent.
Prospects for 2014 appear slightly more optimistic with international financial institutions and government expecting growth to slightly accelerate to 2 percent as top trade partners Italy and Greece are forecast to escape recession.
Sluggish domestic consumption, poor private investments, underperforming government revenue, public debt having climbed to around 70 percent of the GDP, non-performing loans at around 24 percent are some of the key wounds of the Albanian economy. Lending having plunged to moderate negative growth rates and deposits striving to maintain positive growth rates are some other indicators of the critical situation. Both migrant remittances and tourism revenue have been on a downward trend since the outbreak of the global crisis in 2009.
Meanwhile, exports and foreign direct investment have been on an upward trend emerging as Albania’s key drivers of growth.
The good news is that mid-term prospects appear optimistic and Albania will return to moderate growth rates.
The International Monetary Fund expects Albania to be one of the best performing economies among emerging and developing European countries in the next five years. In its latest World Economic Outlook for April 2014, the IMF expects the Albanian economy to recover to 2.1 percent in 2014 after sluggish growth in 2013 and accelerate to 3.3 percent in 2015.
The IMF which is assisting the Albanian government return to sustainable growth through a series of reforms supported by a Euro 331 million loan to pay off accumulated unpaid government bills expects Albania to be one of the best performers among 13 emerging and developing European countries from 2016 to 2019 with average growth ranging from 4.2 percent to 4.7 percent.
The same to the Albanian government’s projections, the IMF expects public debt to climb to 71.6 percent of the GDP in 2014, before going on a downward trend and drop from 71.1 percent in 2015 to 57.1 percent in 2019.
