The European Bank for Reconstruction and Development expects the Albanian economy to grow by 1.8 percent in 2012 and 2 percent in 2013 up from 0.6 percent and 1.3 percent respectively last October
TIRANA, Jan. 22 – London-based EBRD, one of the largest investors in the private sector in Albania, has revised upward Albania’s GDP growth forecast for 2012 and 2013 following a report by state Institute of Statistics, INSTAT, showing the Albanian economy grew by 2.7 percent year-on-year in the third quarter of 2012. In its latest economic outlook issued this week, the European Bank for Reconstruction and Development expects the Albanian economy to grow by 1.8 percent in 2012 and 2 percent in 2013 up from 0.6 percent and 1.3 percent respectively last October.
In its new forecast, the EBRD warns close links to crisis hit top trade partners Greece and Italy will continue to limit growth in 2013.
“Albania’s economy slowed down significantly in the first half of 2012, but some growth returned in the third quarter, largely as a result of recovery in manufacturing and extractive industries. However, 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 in the coming year, 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,” says the report.
The EBRD expects the Albanian economy to grow by 2.4 percent in the final quarter of 2012.
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.
At 58.6 percent of the GDP at the end of 2011, but currently hovering above the 60 percent ceiling, 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 22.7 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 1.9 percent in 2012, down from 3.5 percent in 2011. The country’s official unemployment, currently at 13.3 percent, criticized by experts because of calculating all people possessing land as self-employed in the agriculture sector, is among the lowest SEE region.
With an average growth rate of 1.5 percent during the first nine months of 2012, the Albanian economy is reflecting clear signs of crisis from the Euro area partners and developments at home where domestic consumption and exports remains sluggish, and public debt now beyond the previous legal ceiling of 60 percent of the GDP poses a real threat to the country’s macroeconomic stability The third quarter performance proves government’s reviewed GDP growth target at 3 percent for 2012 is an impossible challenge and that more realistic forecasts are needed in the initial budgets. Under a normative last December, government cut the 2012 budget by 15.8 billion lek (Euro 111 million) to 381 billion because of underperforming revenues.
The growth rates for the first three quarters of 2012 are in line with forecasts by international financial institutions such as the IMF and the World Bank which expect the Albanian economy to grow between 0.5 to 0.8 percent in 2012 and around 1.5 percent in 2013, citing impacts from Eurozone crisis and public debt. The Albanian economy shrank by 0.2 percent in the first quarter of 2012 and grew by 2.1 percent in the second quarter of the year, registering the poorest first-half performance since the collapse of the notorious pyramid schemes in 1997.
Short-term statistics published by INSTAT show that despite top industries registering increases in their turnover indices, almost all of them cut staff, lowered wages or indexed them only to inflation.
Risks in emerging Europe recede as Eurozone outlook stabilizes
Signs of stabilisation in the eurozone are reducing the risks facing emerging Europe, leading to cautious optimism that the worst of the transition region’s problems may slowly be drawing to a close. After a sharp slowdown in economic activity in 2012, the EBRD’s economists are expecting a moderate acceleration of growth this year.
The Bank’s latest economic outlook says, “Downside risks to the outlook have continued to recede as the likelihood of further deterioration of the eurozone crisis diminishes.”
It added, “Growth in the transition region continued to slow down in the third quarter of 2012, but the deceleration is showing signs of bottoming out.”
Across the whole transition region, the EBRD expects growth of 3.1 per cent in 2013, after a sharp slowdown to 2.6 per cent in 2012 from 4.6 per cent in 2011.
The 2013 forecast is marginally lower than the 3.2 per cent seen in October. However, Chief Economist Erik Berglof said, “For the first time in a long while we are now seeing the possibility of a reduction in the risks facing emerging Europe, especially the risks from the eurozone. It is too early to sound the all-clear but there are signs of stabilisation.”
The report notes that declines in exports in the latter part of 2012 moderated compared to levels seen earlier in the year, while modest private capital inflows into the region that had returned in the second quarter continued in the third quarter.
Moreover, cross-border bank deleveraging in the region, and especially in central and eastern Europe and the Baltics and in southern and eastern Europe, continued in the autumn of 2012 but at a much slower pace than earlier.
However, these developments had not yet translated into a consistent improvement in credit growth in the region, the report said
The EBRD report points to policy decisions taken within the eurozone in recent months as increasing the chances of an economic improvement in the single currency bloc, albeit a very slow and gradual one. Recent such decisions include the European Central Bank signalling its readiness to help countries under pressure on the sovereign debt markets as well as moves to create a European Banking Union.
“The euro area crisis will continue to negatively impact growth in the transition region, but as the eurozone recession bottoms out economic activity in the transition countries that depend on it is likely to stop deteriorating,” the report says.
