“The anaemic growth performance reflects primarily the extent of difficulties in the eurozone and particularly in periphery countries that are Albania’s major economic partners, but also home-grown problems related to weak corporate balance sheets and accumulation of government arrears have also played roles,” says the EBRD
TIRANA, Jan. 21 – Citing spillover impacts from the Eurozone and home-grown problems with public finances, London-based EBRD has slightly raised its 2013 growth forecast for Albania but further downgraded it for 2014. In its new Regional Economic Prospects report published this week, the EBRD upgraded Albania’s 2013 growth forecast to 1.5 percent, up from 1.2 percent in the previous report last October and lowered the country’s 2014 growth by 0.3 percent to 1.7 percent.
“Economic activity in Albania remained subdued throughout 2013. The anaemic growth performance reflects primarily the extent of difficulties in the eurozone and particularly in periphery countries that are Albania’s major economic partners, but also home-grown problems related to weak corporate balance sheets and accumulation of government arrears have also played roles,” says the EBRD.
The EBRD describes public debt at over 60 percent of the GDP and non-performing loans at around 25 percent as major barriers to Albania’s recovery.
“Public debt is now above 60 per cent of GDP and still rising, and financial sector vulnerabilities are evident with NPLs of around 25 per cent of total loans.”
The EBRD expects both domestic and external demand to recover in 2014, but says that fiscal stability reforms with the IMF will limit their contribution.
“The new government has committed to tackle investment climate improvements, and an agreement has been reached with the IMF at staff level on a new programme, which should help anchor fiscal stability. Only a mild increase in growth is forecast for this year as expected fiscal tightening under a new IMF programme will dampen the positive growth contributions from the continued recovery in both domestic and external demand.”
At 1.6 percent for 2012, Albania registered the highest growth rate in the eight EBRD South-eastern Europe countries of operation along with Kosovo at 2.5 percent. However, at 1.5 percent in 2013 and 1.7 percent in 2014, Albania would register one of the lowest growth rates in the region.
The EBRD had earlier warned “Albania’s strong trade, investment and remittance ties to Greece and Italy, both of which face continued economic gloom, are likely to continue to constrain growth and the high level of public debt, at close to the statutory limit of 60 per cent of GDP, will limit the room for fiscal manoeuvre.”
The EBRD is one of the largest investors in the private sector in Albania. Since the beginning of its operations in Albania, the EBRD has invested over Euro 700 million in various sectors of the country’s economy, mobilising additional investments of more than Euro 2 billion from other sources of financing.
In its latest publication on the third quarter of 2013 when the Albanian economy contracted by 2.23 percent year-on-year, INSTAT revised upward the growth rate for the first quarter of 2013 to 1.87 percent, up from a previous estimate of 1.7 percent while the growth for the second quarter of the year was raised to 1.68 percent, up from 1.1 percent previously.
The revisions to the growth rates mean the Albanian economy has grown by 0.4 percent in the first three quarters of 2013, up from an estimated 0.2 percent under the previous growth rates.
The revision of quarterly growth rates has also affected Albania’s annual GDP growth for the 2010-2012 period when Albania grew by an average of 3 percent, remaining one of the best performing economies in the region.
Data Mismatch
The EBRD forecast for 2013 might not be updated since the London-based financial institution has calculated Albania’s third quarter GDP growth rate at 0.7 percent at a time when the country’s Institute of Statistics reported a 2.23 shrink in the third quarter. The EBRD also expects Albania to grow by 2.7 percent year-on-year in the final quarter of 2013.
In the first and second quarters of 2013 the EBRD has cited INSTAT data of 1.7 percent and 1.1 percent. Growth rates to previous years also correspond to INSTAT data.
Slow recovery
A recovery this year in the regions where the EBRD invests is expected to be slow, despite improvements in the world’s most advanced economies, including in the United States and the Eurozone.
“For sustained recovery to take hold, countries in the region need to resume structural reforms and tackle the persistent legacies of the crisis, including high rates of non-performing loans and long-term unemployment,” the report said.
“There are increasingly positive signs in the world economy, especially in the most advanced countries. But the EBRD’s own region is not yet out of the woods and still faces many challenges,” said EBRD Chief Economist Erik Berglof.
All south-eastern Europe (SEE) countries that were in recession in 2012 recorded positive growth in 2013. These include Bosnia and Herzegovina, FYR Macedonia, Montenegro and Serbia, while growth in Romania is estimated to have accelerated to 2.5 per cent. As a result, average growth in the region picked up markedly, from 0.4 per cent in 2012 to an estimated 2 per cent in 2013. Stronger export performance and a better harvest have been important drivers of recovery in these economies. However, unemployment remains high across the region.
World Bank/IMF
The World Bank expects the Albania economy to grow by 1.3 percent in 2013 and accelerate to 2.1 percent in 2014, in line with the Albanian government’s forecasts. In its latest Global Economic Prospects report, the World Bank expects Albania growth to further accelerate to 3 percent in 2015 and 2016.
Meanwhile, the International Monetary Fund expects the Albanian economy to remain sluggish in the next five with growth rates ranging between 1.7 percent in 2013 to 2.5 percent in 2018. In its October World Economic Outlook, the IMF says the Albanian economy is expected to grow by 1.7 percent in 2013, up only 0.1 percent compared to 2012 when it registered its poorest GDP growth rate in the past 15 years and half of the average 3 percent growth rate from 2009 to 2011. The IMF expects Albania’s growth to accelerate to 2.1 percent in 2014.
