Deutsche Bank expects gradual recovery in Albanian economy

TIRANA, Sept. 30 – Growth is expected to strengthen rather gradually in 2014, with increased fiscal tightening amplifying already subdued domestic demand, says Kevin Koerner in a report prepared for Deutsche Bank Research, which is conducts macroeconomic research in the Deutsche Bank Group, one of the world’s leading financial service providers.
“Albania’s medium-term growth prospects are constrained by structural shortcomings such as a weak business environment and corruption. Albania has to deal with substantial fiscal challenges. The 2013 deficit, around 6 percent of GDP, significantly exceeded the 3.56 percent official target and is expected to remain at roughly this level in 2014. Including the recognition of payment arrears of around 56 percent of GDP, government debt surged further to above 70 percent of GDP in 2013, the highest in the region,” says the report.
Substantial fiscal consolidation such as expenditure cuts and tax reforms are crucial to bring public debt back below the 60 percent target urged by the IMF, recommends the report, adding that domestic demand is also kept subdued by stagnant credit growth, which reflects tightened lending standards as banks are confronted with deteriorating credit quality.
“Until 2011, Albania largely withstood the fallout from the global and euro crisis with GDP growth rates above 3.6 percent p.a. After slowing down in 2012, real GDP growth declined further in 2013 to just 0.76 percent, reflecting the weak demand of Albania’s main trading partner, the euro area, but also domestic problems,” says the report.