Economy Returns To Normal Growth In Q3, Construction Remains In Crisis
By ervin lisaku
TIRANA, Jan. 10 – After moderate growth during the first half of 2010, the Albania economy returned to high growth rates in the third quarter somehow overcoming the global crisis effects present since the beginning of 2009. Latest INSTAT data show the country’s GDP in the third trimester of 2010 grew by 4.9 percent year-on-year and 1.6 percent compared to the second quarter.
Industry, transport, services, trade and agriculture were the drivers of the economic expansion while the construction and post-telecommunication continued suffering registering negative growth rates.
However, the GDP has to register another higher rate for the final quarter of 2010, which will be published by the end of next March, in order to meet the government target of a 4.1 percent growth rate for the whole of 2010.
INSTAT data show the industry sector, dominated by textile and shoe manufacturing producing Albania’s largest exports, registered the biggest increase growing by 18.2 percent year-on-year and 1.8 percent compared to the second quarter.
Second came the transport sector with a 12.9 percent increase compared to the third quarter of 2009 and 4.2 percent compared to the second quarter 2010. The considerable growth in this sector is attributed to the peak tourist season in July and August and the reopening of the Rreshen-Kalimash tunnel linking Albania and Kosovo in the shortest possible way last July.
Third came services which grew 12 percent year-on-year and 3.1 percent compared to the second quarter of 2010. Trade hotel and restaurants which are listed as a separate branch grew by 8.1 percent compared to the third quarter of 2009 and 1.1 percent compared to the second quarter of 2010. Services represent some 54% of the Albanian GDP with trade, hotels and restaurants accounting for the largest share.
The agricultural sector, employing the majority of people in rural areas generating about 18.5% of GDP and 48.3% of total employment continued its good performance even in the third quarter of 2010, growing by 7.6 percent compared to the same period last year and 0.8 percent compared to the second quarter. This important sector to the Albanian economy continues being the least government-funded among the other four priority sectors of education, health, defence, and transport. The 2011 budget on the Agriculture Ministry foresees a total of 68 million dollars or 0.51 percent of the GDP despite of a 26 percent increase compared to 2010.
Meanwhile, the post-telecommunication market registered a slight improvement compared to the second quarter growing by 3.7 percent, but shrank 7.9 percent compared to the third quarter of 2009.
Construction
The construction sector, once the main driver of the Albanian economy, continued remaining in crisis, shrinking by 22 percent year-on-year and 2.5 percent compared to the previous second quarter. The construction sector was the hardest-hit even during the first half of this year shrinking by 20 percent in the first quarter and 29 percent in the second quarter.
Construction has been one of the most dynamic sectors in the country contributing to more than 10 percent of the GDP in the past years and employing 18 percent of people working in the private sector.
The central bank said in its recent monetary policy report, the situation in the construction sector whose performance has been worsening since the second quarter of 2009, was mainly further deteriorated by contraction of private constructions.
The situation was a result of low domestic demand, ongoing tight standards applied to home loans and low level of scheduled public investments, accounting for a negative contribution of 4.6 percentage points in the economic growth of the second quarter.
The decrease in demand and rising construction costs further deteriorated the financial situation of the construction sector which has been suffering liquidity problems and problems to repay loans. Construction companies expect the situation in the fourth quarter to remain pessimistic and producer prices to undergo another slight increase.
H1 performance
After shrinking by 0.8 percent in the last quarter of 2009, the economy managed to return to positive rates, registering year-on-year growth rates of 2 percent in the first quarter of 2010 and 3.3 percent in the second quarter.
The poor performance after the 3.3 percent GDP growth in 2009, when Albania became one of the few economies to register positive growth in global crisis year, was first of all affected by the sharp shrink in the construction sector, 29 percent year-on-year in the second quarter, and the deterioration in the post-telecommunications market, whose activity fell by 2.6 percent during the same period.
Lower migrant remittances and foreign direct investment were the most obvious signs of the global crisis in Albania although the country’s economy is not well-integrated into the global market. Lending standards also remained tight both for businesses and individuals after bad loans climbed to a record 13.5 percent at the end of September 2010.
Lower tax and customs revenues forced government to make significant budget cuts in mid-year, reducing spending by 25 percent and lower its GDP growth for 2010 to 4.1 percent down from an expected 5.5 percent at the beginning of this year.
Under the newly approved 2011 budget government hopes the economy will return to a 5.1 percent growth, which is still almost twice higher compared to what international financial institutions such as the World Bank and the EBRD project for the Balkan country.
The high public debt levels currently at a record 59.5 percent of the GDP remains a key challenge.
