The value added tax (VAT) which is the key indicator measuring domestic consumption remained at the same levels in early 2012 while exports suffered a double digit decline
TIRANA, March 26 – Both domestic consumption and exports, two of the key drivers of Albania’s economic growth failed to recover in the first two months of 2012, signaling the Albanian economy will face harsher crisis impacts this year as international financial institutions have warned.
The latest Finance Ministry data show the value added tax (VAT) which is the key indicator measuring domestic consumption remained at the same levels in early 2012 while exports suffered a double digit decline as demand from crisis-hit EU countries, the destination of more than 70 percent of Albanian exports, remains sluggish.
Total government revenues during the first two months of 2011 were at almost exactly the same levels compared to same period last year, up only 0.3 percent, signaling budget cuts during this year will be sharper taking into account the overoptimistic 4.3 percent GDP growth target government has set for this year and the 7.8 percent growth in revenues at a time when in 2011 revenues rose by a mere 1.75 percent, registering the lowest growth rate in the past 11 years.
What’s most concerning is that some of the country’s top exports such as “garment and footwear” and “minerals and fuel” dropped by 4 percent and 34 percent respectively in Jan-Feb 2012, revealing that Albanian producers are facing lower demand from their top EU and regional partners.
Albanian exports during the first two months of this year dropped by 20 percent to 198 mln Euros while imports rose by only 1.7 percent to 538 mln euros, widening the country’s trade gap to 340 mln Euros, compared to 280 mln Euros a year ago, according to Bank of Albania data.
Government’s overoptimistic scenario for 2012 is confirmed by total revenues which at around 49.3 billion lek were only 0.3 percent year on year for the first two months of 2012. VAT and excise revenues, accounting for half of total government revenues, registered growth rates 0.7 percent and 3.4 percent respectively.
Finance Ministry data show government spent twice less on investments during the first two months of this year as expenditure on wages, and maintenance registered considerable increases.
While the situation with exports might have also been affected by serve weather conditions affecting Albania and the region, the good news is that exports with the Italy and Greece, Albania’s top trade partners, continued registering growth rates of 11 percent and 9 percent respectively.
Fuelled by ongoing rising demand from Italy, Albanian exports continued registering double-digit growth for the second year in a row after the shrink in the outbreak of the global crisis in 2009.
Central bank data show Albania’s exports rose by 19.7 percent to Euro 1.4 billion in 2011, compared to an annual growth rate of 56 percent in 2010 and an 18 percent shrink in 2009.
Despite suffering severe debt crisis and its economy slowing down, Italy continued remaining Albania’s top trade partner accounting for 53 percent of exports and 30 percent of imports, according to INSTAT data. Albania’s major exports to Italy are garment and footwear products, accounting for 50 percent of total exports there.
The situation in the more severely crisis-hit neighbouring Greece, Albania’s second most important trade partner, registered a turning point for exports, but continued their downward trend for imports for the third year in a row. The 2011 BoA data rank Greece as the fourth major destination of Albanian exports and the second major partner for imports. Detailed INSTAT data show the fa谮 industry, producing garment and footwear products with imported raw material, continued remaining the top export performer also thanks to Arab spring turmoil and the removal of customs fees.
The Albanian government’s projection of the 2012 growth being stimulated by domestic private consumption and investments, on a falling trend since 2011 remains an overoptimistic scenario little likely to achieve the target for 4.3 percent economic growth rate at a time when the IMF says Albania will hardly manage to escape recession.
“In 2012, economic growth is expected to arise mainly from domestic private consumption and investment, while foreign demand is projected to have a lower contribution. Moderation in the pace of government spending will also lower its contribution to GDP,” says the Finance Ministry in its latest review of the 2012 economic and fiscal program. The projections run even counter to findings of state institutions such as INSTAT and the Bank of Albania which show that retail sales and business and consumer confidence remain pessimistic.
Government’s only hope for extra revenues remains the successful privatization of remaining wholly owned state assets such as Albpetrol oil company and Insig insurer as well as the sale of minority stakes in several other important assets.
The country’s state Institute of Statistics, INSTAT, has recently revised downward Albania’s annual GDP growth for 2010 to 3.25 percent, down from a previous 3.9 percent, according to calculations made from quarterly data. Meanwhile, the GDP growth for the first and second quarters of 2011 has been revised upward to 4.5% and 0.9% respectively, up from 3.4% and 0.5% previously. Taking into account the 2.6 percent growth rate reported for the third quarter 2011, Albania’s average GDP growth for the first three quarters of 2011 climbs to around 2.7 percent, up from 2.2 percent under the previous data, remaining closer to government’s revised target of a 3 percent growth for 2011.
In its latest review of the macroeconomic and fiscal framework, made on Jan. 18, government lowered its GDP growth forecast for 2011 to 3 percent, down from 3.9 percent in late 2011 and 5 percent in early 2011, but left its growth expectations for 2012 to 2013 unchanged at 4.3 and 5 percent, respectively, the same to the review made in Nov. 2011. Although claiming to have drafted a more conservative and realistic budget for 2012, when compared to forecasts made by the world’s most prestigious financial institutions the gap is wider than ever. The latest blow about the severe situation the Albanian economy is facing was given by the IMF which has been monitoring and assisting Albania for the past two decades. Citing Euro area spillover impacts, weakening internal demand and more mature lending, IMF’s representative for Albania Gerwin Bell has announced the Fund had slashed Albania’s GDP growth to 1.1 percent for 2011 and 0.5 percent for 2012.
