Central bank governor Ardian Fullani warns 2012 is expected to be under the influence of unfavorable developments in the global economy which will also condition the Albanian economy
TIRANA, May 14 – Albania’s central bank says economic growth is likely to have decelerated in the first quarter of this year after both domestic consumption and private investments, the two key drivers of this year’s expected growth, failed to recover. In its monetary policy report for the first quarter of this year, the Bank of Albania says a slowdown is reported in all economic sectors, except for services whose confidence has shown signs of recovery.
In addition, exports’ drop in the first quarter of this year has further aggravated matters.
“The external economic situation, especially in the Eurozone, creates an unfavourable environment for the growth of Albanian exports. The uncertainties of economic growth, the slow increase in revenues and the relatively tight lending standards, could negatively affect consumption and investments. On the other hand, the behaviour of the fiscal agent in accordance with targets on budget deficit will limit fiscal stimuli and internal demand in the short-term,” says the bank. Favourable developments in the financial markets influenced by easier monetary policy are expected to be reflected in favorable conditions to support consumption and private investment in the economy.
Partial data for the first quarter of this year support the estimate of a slow economic growth in this quarter. The macroeconomic indicators of consumption and private investments (employment, expectations about the future, the confidence level and lending conditions suggest a controlled increase of internal demand at the presence of careful behaviour by the fiscal agent. However, stimulating monetary conditions and financial wealth accumulated in previous periods are stable resources expected to support the growth of consumption and private investments during this year, adds the bank.
In the monetary policy report, central bank governor Ardian Fullani warns 2012 is expected to be under the influence of unfavouable developments in the global economy which will also condition the Albanian economy. “External demand is expected to provide a lower contribution influenced by an economic slowdown in partner countries. Meanwhile, orientation toward the further consolidation of fiscal policy, limits space for an inherent fiscal stimulus supporting the growth in economic activity,” says Fullani.
The increase in demand below the economy’s potential will continue keep inflation rates at low levels. Average inflation rate during the first quarter of 2012 was at 1.1 percent, registering one of the lowest levels in the past decade. At 1.9 percent below the central bank’s target of 3 percent, the inflation rate reflects a poor consumer demand and possible deflation risks.
Poor revenue performance during the first quarter of this year reconfirmed the overoptimistic 2012 government has approved and the inevitable mid-year budget cuts government will be forced to make for the third year in a row. Latest Finance Ministry data show total government revenues during the first three months of this year grew by only 1.2 percent to 78.4 billion lek year-on-year failing to meet government targets by 5 percent or 4 billion lek (Euro 28.5 million). Government expects revenues to increase by 7.8 percent and the economy to grow by 4.3 percent for 2012, which is twice higher compared to what international financial institutions forecast.
Prospects become more pessimistic as both domestic consumption and exports, two of the key drivers of Albania’s growth failed to grow in early 2012. Businesses are also facing tough times in early 2012 after profit tax registered a sharp 21.8 percent shrink at the end of the first quarter.
The value added tax and excise taxes, two of the key indicators measuring domestic consumption and accounting for almost half of total government revenues, grew by only 0.8 percent and 3.2 percent respectively, failing to meet targets by 5 percent each.
The Albanian economy grew by 3.1 percent in 2011, remaining at the same moderate growth rates for the third year in a row, according to GDP report published by the country’s state Institute of Statistics, INSTAT.
INSTAT data show the GDP grew by 3.8 percent in final quarter of 2011 year-on-year but was up only 0.1 percent compared to the previous third quarter.
Transport, trade, services, post-telecommunication and construction registered annual growth rates of 15.4%, 8.8%, 5.4%, 3.8% and 1.2% in the final quarter of 2011, while industry shrank by 7.8 percent. Agriculture also grew by 1.9 percent y-o-y.
