Albania has experienced a significant slowdown in economic activity largely due to the weak performance of its key EU markets, Greece and Italy, says the EBRD which expects the Albanian economy to contract by 0.1 percent in the third quarter of 2012
TIRANA, Oct. 29 – London-based EBRD has downgraded Albania’s GDP growth forecast for 2012 to only 0.6 percent, down from 1.2 percent last July citing close links to crisis-hit EU partners Greece and Italy and public debt at the legal threshold of 60 percent of the GDP. In its latest October Regional Economic Prospects, the European Bank for Reconstruction and Development, which is one of the country’s main financiers, expects growth to slightly accelerate to 1.3 percent only in 2013. “Albania continued to grow faster than other countries in the region in 2011 but it has experienced a significant slowdown in economic activity in the first half of 2012, largely due to the weak performance of its key EU markets, Greece and Italy. Albania’s strong trade, investment and remittance ties to these countries are likely to continue to constrain growth in the coming year, and public debt, which is close to the statutory limit of 60 per cent of GDP, will limit the room for fiscal manoeuvre,” says the report.
The EBRD expects the Albanian economy to contract by 0.1 percent in the third quarter of 2012 and grow by 0.5 in the final quarter of 2012
At 58.6 percent of the GDP at the end of 2011, Albania has the highest public debt rate among seven South-Eastern Europe countries surveyed in the EBRD report. Public debts levels for Bulgaria, Macedonia, Romania, Bosnia and Herzegovina, Montenegro and Serbia vary from 15.5 percent of the GDP to 50 percent of the GDP. At 21.4 percent, Albania also has the highest levels of non-performing loans although the banking system remains well-capitalized with the loan/deposit ratio at 58.3 percent. The EBRD expects Albania’s inflation rate to drop to 2.1 percent in 2012, down from 3.5 percent in 2011
In its review to the 2013-2015 macroeconomic framework approved by government on July 1, the 2012 GDP growth forecast was lowered to 3 percent, down from 4.3 percent in the initial budget and the public debt raised to 59.9 percent of the GDP, only 0.01 percent below the legal threshold
The IMF expects the Albanian economy to grow by 0.5 percent in 2012 while the World Bank has downgraded its growth rate for Albania to 1 percent.
Lower domestic consumption, stagnating exports, some of the key industries in crisis, lending and deposits growth rates slowing down and government revenues far below targets are some of the symptoms of the ailing Albanian economy in the first half of 2012. Poor performance in early 2012 when the economy officially shrank by 0.2 percent and a 2 percent growth rate in the second quarter of 2012 indicate the Albanian economy will suffer severe impacts from the crisis in the Euro area and problems at home where domestic consumption, the key driver of growth, remains sluggish.
Emerging Europe
Emerging Europe is likely to live through another challenging year before any real recovery can start, EBRD economists say. Short-term economic prospects for the SEE region are highly uncertain in the present economic climate. Financial sector vulnerabilities constitute the biggest risk, given that the vast majority of the banking system is foreign-owned and given the ongoing deleveraging pressures and the need to restructure bank balance sheets. In some countries these banks also hold significant quantities of local treasury bills. In the first three months of 2012, several countries reported output contractions relative to the previous quarter, and while the second quarter was comparatively better and growth was positive in most countries, there is no sign anywhere of a return of the confidence and investment needed to restore growth to the region.
