TIRANA, May 11 – London-based European Bank for Reconstruction and Development expects Albania to register the highest growth rate among Western Balkan economies in the next couple of years, but warns the completion of the two major energy-related projects that drove growth in the past four years and high level of public debt remain key barriers and growth will linger around the same 2017 levels.
In its latest Regional Economic Prospects report, the EBRD has slightly revised upward Albania’s 2018 growth outlook and now expects the country to grow by 3.8 percent, up 0.1 percent compared to last November, as credit growth recovers due to declining non-performing loans. The 2019 forecast is the Albanian economy will recover to 3.9 percent, up from an estimated 3.8 percent.
The EBRD’s 2018-2019 outlook is considerably more optimistic compared to the World Bank and the IMF which expect the Albanian economy to slow down to 3.5 to 3.7 percent in the next couple of years, but yet considerably below the Albanian government’s more optimistic scenario of growth picking up to 4.2 and 4.3 percent.
“The construction of two major energy sector projects is driving investment, although the direct economic impact on GDP is expected to decelerate in the short term before the economy starts enjoying the operational benefits of the two projects from 2020 onwards,” says the EBRD.
The Trans Adriatic Pipeline bringing Caspian gas to Europe and the Devoll Hydropower project by Norway’s Statkraft, whose investment stage completes by the end of this year, have been Albania’s top FDI projects since 2014 triggering total investment of about €1.5 billion, equal to about 14 percent of the country’s GDP.
Experts say Albania’s FDI could suffer a €200 million blow starting 2019 unless any other major projects replace TAP and the Devoll Hydropower.
The EBRD warns Albania’s public debt at about 70 percent of the GDP, a high level for Albania’s stage of development, leaves little room for increased government spending and tax incentives.
“The high level of public debt remains a significant constraint on any fiscal stimulus but credit growth is expected to continue as the health of the banking sector improves and as the level of non-performing loans declines further,” says the EBRD.
The London-based financial institution expects oil prices to remain at about US$ 70 per barrel for 2018, up 24 percent compared to 2017, something that could trigger increased production and exports in Albania’s oil industry.
The EBRD expects growth in the six EU aspirant Western Balkan economies to pick up for 2018 as the end of a political crisis in Macedonia boosts investor confidence there and the region’s largest economy, Serbia, recovers to 2.9 percent in 2018 on stronger consumption and investment.
The EBRD’s growth outlook for neighboring Greece, Albania’s traditional second largest trading partner is at about 2.2 percent for the next couple of year following an eight-year recession ending in 2016 that saw the Greek economy shrink by about a quarter, with negative effects on trade and investment ties with Albania and remittances from about half a million of Albanian migrants there.
An earlier EBRD report has shown Albania and other Western Balkans EU aspirant countries could need up to two centuries to catch up with EU living standards.
The 200-year gap is the pessimistic scenario that the EBRD predicts for the region to fully converge with average EU living standards compared with a baseline scenario of 60 years and an optimistic scenario of 40 years.
London-based EBRD is one of the country’s largest lenders with investment of almost €1 billion in some 80 projects in the country.
