A central bank survey shows the deterioration of the Economic Sentiment Indicator was mostly affected by a confidence drop by the services sector and to a lower degree by the industry and construction sectors
TIRANA, July 16 – Affected by a sharp decrease in business confidence, the Economic Sentiment Indicator (ESI), measuring both business and consumer confidence dropped by 6.2 percentage points to 82.4 percent in the second quarter of 2013, ending its recovery in the previous two quarters, a Bank of Albania survey showed this week. Currently standing at 17.6 percent below its long-term average, the ESI has been under this situation since the first quarter of 2009 on the onset of the global financial crisis when it plunged by around 30 percentage points to 70 percent compared to the final quarter of 2008.
The survey unveiled the deterioration of ESI was mostly affected by a confidence drop by the services sector and to a lower degree by the industry and construction sectors.
Consumer confidence registered positive growth rates for the second quarter in a row, slightly balancing businesses’ worsening confidence.
The services sector, which accounts for around 60 percent of the GDP, suffered a sharp shrink of 13.9 percent in the second quarter of 2013 over concerns of general business situation and the financial situation of enterprises in the this sector with its confidence standing at around 20 percent below its long-term average.
Identifying corruption, informal economy and relations with banks as top concerns, services enterprises said there had been a drop in demand in the second quarter of 2013. Insufficient demand is estimated as the key factor preventing the capacity utilization rate in the services sector which currently 76.4 percent, 4.1 percentage points below its long-term average.
After a double digit recovery in the year’s first quarter, the confidence index in the construction sector dropped by 6 percent affected by negative development in its production, demand and employment indicators. With capacity utilization rate standing at 61 percent, construction companies expect demand to slightly recover in the third quarter of the year.
One of the key drivers of the Albanian economy until 2008, the construction sector has been continuously shrinking in the past three years due to lower migrant remittances, and tighter lending standards. INSTAT data show construction accounted for 11 percent of the GDP in 2010, down from 15 percent in 2008.
The industry sector confidence dropped by 5.3 percentage points in the second quarter of 2013 after two consecutive quarters of recovery. The situation was affected by an increase in inventories and a drop in industrial production. “The legal and institutional framework, relations with banks are ranked as the key factors negatively affecting the performance of industry businesses,” says the survey. The financial situation of industry businesses deteriorated by 9.4 percent in the second quarter of 2013 while the capacity utilization rate dropped by 0.7 percent.
Meanwhile, consumers’ confidence maintained positive growth rates in its confidence index for the second quarter in a row. Consumers’ confidence index was up by 5.7 percent, climbing above its long-term average for the first time since the final quarter of 2011. Consumers’ perception about the financial and economic situation recovered, however their expectations about unemployment rate for the next six months remain pessimistic for the second consecutive quarter.
The difficult situation both consumers and business are experiencing is also confirmed by government data. Data show that consumption, the key driver of Albania’s growth, continues remaining poor with the value added tax, which indirectly measures it, shrinking by 5.4 percent. Excise taxes imposed on the so-called luxury products also declined by 4.1 percent in the first five months of this year.
Fuelled by a double digit increase in post and telecommunications and in industry, the Albanian economy grew by 1.7 percent year-on-year in the first quarter of the year, registering one of the lowest first-quarter performances since the onset of the global crisis in 2009, according to the latest report by the country’s state Institute of Statistics, INSTAT. Back in the first quarter of 2012, the Albanian economy shrank by 0.4 percent year-on-year affected by severe weather conditions and escalating impacts from crisis-hit top trade partners Italy and Greece, revised INSTAT data show. In 2012, the Albanian economy grew by 1.6 percent registering its lowest growth rate since the 1997 turmoil triggered by the collapse of the pyramid investment schemes, and half of the average of 3 percent growth rate annually from 2009 to 2011.
