“Industry, agriculture and services continued supporting economic growth while no signs of improvements are observed in the construction industry,” says Fullani.
TIRANA, Nov. 27 – After growing by an average of 1 percent in the first half of this year, the Albanian economy maintained positive but a low growth rate below potential even in the third quarter of this year, says central bank governor Ardian Fullani. Presenting the monthly monetary report this week, Fullani said the slow progress of economic activity has been accompanied by a slow increase in production costs and low inflation pressures. “Industry, agriculture and services continued supporting economic growth while no signs of improvements are observed in the construction industry,” said Fullani. Foreign demand continued supporting economic growth even in the third quarter of 2012 while internal demand remained sluggish conditioned by lack of fiscal stimulus, poor consumption and private investments, says the central bank.
Governor Fullani reiterated his appeal on consumers and businesses to adopt what he called a more pragmatic approach on current consumption and investments. The governor also called on banks to increase lending. Bad loans at a record 22 percent and lower demand by both individuals and businesses has led to credit growth rates dropping to as low as 4.2 percent last September.
Key interest rate unchanged at 4%
The central bank has decided to keep the key interest rate unchanged at 4 percent, the lowest historical level, for the fourth month in a row, saying that monetary conditions were appropriate to meet inflation target in the mid-term. The key interest rate at the lowest historical levels also ensures appropriate monetary stimulus to promote internal demand and support economic growth,” said governor Fullani. Low inflation pressures have allowed the Bank of Albania to cut the key interest rate by 1.25 percentage point to a historical record low of 4 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. The impacts have been more positive on T-bill yields which dropped to an average of 6.41 percent in the latest November 11 auction, down from 6.61 percent in the previous auction and a record 7.5 percent last March, registering the lowest rates for this year
The governor has earlier warned the poor performance of domestic consumption, the key driver of the Albanian economy, could bring a spiral of threats.
“The curb of consumption as a reaction to the country’s future economic insecurity could turn into a spiral of reciprocal impacts among macro-economic indicators in Albania. The shrink in consumption is accompanied with a drop in domestic demand leading to a slowdown in economic growth and a decrease in household income at a next stage,” said Fullani.
After shrinking by 0.2 percent in the first quarter, the Albanian economy grew by 2 percent in the second trimester. With an average growth rate of 0.9 percent during the first half of this year, the Albanian economy is reflecting clear signs of crisis from the Euro area partners and problems at home. Government’s reviewed forecast of a 3 percent growth rate for 2012 will also be difficult to achieve considering that growth rates of 5 percent for each of the two remaining quarters are needed to meet the target.
The International Monetary Fund and the European Bank for Reconstruction and Development expect the Albanian economy to grow by 0.5-0.6 percent while the World Bank has downgraded its forecast to 1 percent, citing high public debt levels and spillover impacts from the crisis in Greece and Italy. Meanwhile, government has lowered its growth expectations for 2012 to 3 percent, down from 4.3 percent earlier.
Public debt at around the legal ceiling of 60 percent of the GDP and bad loans at a record 22 percent pose a key threat to the Albanian economy.
Lek-denominated loan rates drop
Average interest rates on lek-denominated loans significantly dropped to 9.11 percent in October 2012, down from 11.1 percent last September and 11.41 percent in October 2011, for the first time reflecting the central bank’s consecutive cuts to the key interest rate. Since Sept. 2011 the Bank of Albania has lowered the key interest rate by 1.25 percent to 4 percent over this one-year period but until recently the moves had been poorly reflected in lowering interested rates in lek-denominated loans or T-bill yields.
Meanwhile, interest rates on Euro-denominated loans slightly rose to 7.38 percent in October 2012, up from 7.19 percent last September, and 7.31 percent a year ago.
Interest rates 12-month Lek denominated deposits slightly rose to 5.24 percent in October 2012, up from 5.19 a month ago and 5.89 in October 2011. Interest rates on deposits in Euro slightly climbed to 3 percent down from 3.11 percent in october 2011.
