Albania’s 2011 GDP growth estimate at 5.1 percent is the best among the seven Southeast European countries covered in the report, but if the 2012 forecast proves true, Albania’s growth at 1.9 percent would be the lowest
TIRANA, July 25 – The European Bank for Reconstruction and Development (EBRD) has raised its 2011 economic growth forecast for Albania, but further lowered its 2012 estimate. In its latest Regional Economic Prospects report, the EBRD raised Albania’s GDP growth for 2011 to 5.1 percent, up from 3 percent last May, but lowered its forecast for 2012 to 1.9 percent, down from 3.4 percent earlier.
Albania’s 2011 GDP growth estimate at 5.1 percent is the best among the seven South-East European countries covered in the report, but if the 2012 forecast proves true Albania’s growth at 1.9 percent would be the lowest.
Albania’s public debt at 59.7 percent of the GDP is also the highest compared to Bosnia and Herzegovina, Bulgaria, FYROM, Montenegro, Romania and Serbia where public debts levels vary from 18 percent to 44 percent. However, the good thing about Albania’s public debt is that only around 42 percent is external debt and that only 7.2 percent is maturing in the short-term.
Albania’s non-performing loan portfolio at 13.5 percent in late 2010, (currently at 14.4 percent) and unemployment rates at 13.5 percent are among the lowest in the eight SEE countries covered in the EBRD report. The report expects the inflation rate to be at 4.3 percent, which is 0.3 percent above the Albanian central bank’s target. Current account deficit is expected to deteriorate to -11.2 percent, while net foreign direct investment is expected to slightly drop to 5.5 percent of the GDP, down from 6.8 percent last year.
The EBRD’s latest estimates about 2011 are in line with government’s predictions which lowered GDP growth rate to 5 percent after making budget cuts of around 18.3 billion lek (183 million dollars) to keep budget deficit at 3.5 percent of the GDP and the high public debt levels at the threshold of 60 percent of the GDP.
Last June, just before government was about to make mid-year budget cuts for the second year in a row, the International Monetary Fund lowered Albania’s GDP growth rate to 2.7 percent, down from 3.4 percent earlier this year. IMF’s Gerwin Bell said Albania could lower its public debt to 50 percent in the next five years only if it freezes wage and pension increases, increases social security contributions again, or raises the flat tax to 12 or 15 percent, up from 10 percent currently.
The World Bank expects the Albanian economy to grow by 3.7 percent this year and 4.2 percent in 2012 according to a report published earlier this year.
Vulnerability to Greek downturn
“The economy in Albania continues to grow, thanks mainly to a good performance in exports and industry. However, the country is particularly vulnerable to a serious Greek downturn, with which it enjoys close linkages through trading, investments and remittances,” says the EBRD report.
In an earlier report, the EBRD said the key macroeconomic risk in Albania stems from potential spillover effects from Greek crisis, mostly in the form of falling investment, lower remittances, higher costs for local subsidiaries of Greek banks and reduced trade flows
Around 46 percent of immigrants sending remittances are reported to living in neighboring Greece, compared to 41 percent in Italy, according to a central bank survey.
Albania has more than 600,000 immigrants in Greece, who make up 10 percent of the Greece’s total workforce. Greece is currently the top foreign investor and the second biggest trade partner after Italy since the early 90s.
Greek businesses are present in almost every sector of the Albanian economy, including strategic ones such as telecommunications, banking system, energy, industry, construction, trade and tourism, significantly contributing to the country’s economic growth.
A recent EBRD survey showed the global economic crisis has affected a majority of households in Albania. Around 60 per cent of respondents say that their households have been significantly affected, compared to a transition region average of about 50 per cent, says the report published this week which surveyed almost 39,000 households in 34 countries. “This is despite the fact that Albania was one of the few countries to maintain positive growth during the crisis. There is little variation across age groups, although the upper-income category have been less affected than those lower down the income scale,” added the report.
