TIRANA, Jan. 19 – Citing a contraction in the second quarter of last year and weak external demand outlook, London-based EBRD has revised downward its 2014 growth forecast for Albania’s to 1.5 percent, down from 1.7 percent, according to a regional economic prospects report published this week.
The European Bank for Reconstruction and Development expects the Albanian economy to slightly accelerate to 2.5 percent for 2015, up from 1.5 percent in 2014 and 1.4 percent in 2013. The forecasts for 2014 and 2015 are 0.5 percent lower each compared to what government, the IMF and the World Bank expect for the Albanian economy.
At 1.5 percent for 2014 and 2.5 percent for 2015, Albania would be one of the best performers in the South-eastern Europe EBRD region which also includes Bosnia, Bulgaria, Cyprus, Macedonia, Kosovo, Montenegro, Romania and Serbia.
“We have lowered the growth estimate for Albania marginally, from 1.7 to 1.5 per cent, reflecting weak second quarter data released after our September forecast was published,” says the EBRD.
In its previous report last May, the EBRD said Albania will see a modest upturn in 2014-2015 supported by a new agreement with the IMF and World Bank to clear public arrears to companies and deal with high levels of non-performing loans and weak credit growth.
“Albania’s economic growth was minimal in 2013, reflecting a combination of weak domestic demand and corporate balance sheets, as well as difficulties in neighbouring EU countries (Italy and Greece) which have contributed to a sharp drop in remittances in the past year. Public debt has risen to 70 per cent of GDP and financial sector vulnerabilities are evident with non-performing loans of around 23 per cent of total loans,” says the EBRD report.
Albania’s public debt at 70 percent of the GDP and non-performing loans at 24 percent are the highest among the eight SEE EBRD countries of operation.
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 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.
Sluggish recovery
After sluggish performance in the first half of last year, the Albanian economy registered a significant recovery in the third quarter of 2014, but the 2 percent growth target still seems at risk.
Data published by state statistical institute, INSTAT, shows the Albanian economy accelerated to 3.3 percent after slightly contracting in the second quarter of the year and growing by around 1.4 percent in the year’s first quarter.
The expected recovery in the third quarter of the year, which is the peak of the tourist season, was led by services and the long-ailing construction sector. The transport sector, which has been contracting since the first quarter of 2012, continued registering negative double-digit growth rates.
The moderate recovery in the third quarter of 2014 is also a result of the low base effect in the third quarter of 2013 during the country’s transition to a new government when the economy contracted by 2 percent.
The 3.3 growth in the third quarter of 2014 and the revise downward of the contraction in the second quarter of the year means the Albanian economy has grown by 1.35 percent in the first three quarters, but needs stronger growth of around 4.7 percent in the final quarter of the year in order to achieve its 2 percent target growth.
