TIRANA, April 21 – The Albanian economy registered a significant recovery in 2015 when the GDP grew by 2.6 percent but consumption turned to negative growth rate and unemployment rates registered only a modest decline.
Household consumption contracted by 0.17 percent in 2015 following modest growth rates of 0.13 percent to 2.68 percent in the previous five years. Meanwhile, the unemployment rate slightly dropped to 17.7 percent at the end of 2015 compared to 18 percent in 2014, according to state statistical institute, INSTAT.
Central bank governor Gent Sejko explains the drop in consumption as a saving trend by consumers and a psychological effect in times of uncertainty.
“The consumption level is connected to real factors related to employment and psychological factors,” Sejko told VoA in the local Albanian service this week speaking from Washington where he attended the IMF and World Bank Spring Meetings.
“Always under a situation of economic stagnation, crisis or post-crisis, the consumption level is affected by the saving trend. Of course, every increase in consumption would have a positive effect on the country’s economic growth,” he said.
Speaking of deflation concerns, governor Sejko downplayed risks by saying that Albania is facing a disinflationary trend and that the situation was a result of a sharp decline in international oil and agriculture product prices.
Consumer prices rose by only 0.2 percent and 0.3 percent in February-March 2016, sparking deflation concerns considering the central bank’s 3 percent target estimated to have a positive impact on consumption and investments.
Governor Sejko said the central bank had revised downward its inflation expectations for 2016 to 1.9 percent down from a previous 2.3 percent.
The country’s central bank has been stimulating consumption by cutting the key interest rate to a historic low of 1.5 percent in an effort to reduce interest rates for loans denominated in the national currency and discourage savings as deposits interest rates have dropped to a record low.
Since late 2011, the central bank’s easier monetary policy has been mostly reflected on lower deposit rates and yields on government’s internal borrowing, rather than lower loan interest rates.
The loan rates, although considerably lower compared to the pre-crisis period, are still considered high and unaffordable by the business community because of being six times higher compared to the deposit rates which have dropped below the average inflation rate for the past year.
The latest cut in the key interest rate earlier this month was the first for this year and the fifteenth consecutive slash since August 2011, when the key rate was at 5.25 percent.
The governor says Albania’s targeted economic growth needs better coordination with the government.
“The targeted economic growth cannot be achieved without coordination of the monetary policy with a reform in the fiscal sector and other structural reforms,” said Sejko.
The Albanian government has undertaken several reforms in the energy sector and fighting widespread tax evasion but the business climate is still perceived as tough.
Barriers such as corruption and crime, lack of transparency in public procurement, poor legal security and high taxes make Albania one of least attractive destinations for German investors among 16 Central and South East European countries, according to a recent survey.
Other Albanian and foreign business associations have also appealed for measures needed to improve the country’s business environment after Albania lost 35 places to rank 97th out of 189 countries in the latest Doing Business report published by the World Bank.
