The escalating Eurozone crisis and especially the situation in Greece and Italy, Albania’s top trade partners and hosts to more than 1 million migrants, is expected to further aggravate matters
TIRANA, July 31 – Lower domestic consumption, stagnating exports, some of the key industries in crisis, lending and deposits growth rates slowing down and government revenues far below targets are some of the symptoms of the ailing Albanian economy in the first half of 2012 which international financial institutions have warned will see Albania register growth rates between 0.5 to 1.5 percent, the lowest the country has faced after the shrink in the notorious 1997 pyramid investment schemes.
Poor performance in early 2012 when the economy officially shrank by 0.2 percent and top sectors such as industry and crisis-hit construction dropping by double-digits of around 20 percent proves the difficult situation.
Official data show the Albanian economy slightly improved in the second quarter of 2012 with exports ending their negative growth rates and government revenues slightly accelerating. However, domestic consumption, the key driver of the Albania economy continues struggling as shown by the performance of value added tax and excise tax. VAT, which indirectly measures consumption, grew by a mere 1.4 percent while the excise tax levied on so-called luxury products such as fuel, tobacco and alcoholic beverages was down by 0.4 percent compared to the first half of 2011.
INSTAT data show total exports during the first half of this year grew by 2.1 percent while imports were down by 2 percent.
Surveys carried out by Albania’s central bank show both consumer and business confidence deteriorated in the second quarter of 2012 while expectations for the rest of the year remain pessimistic. The difficult situation Albanian businesses are facing is also unveiled by the performance of profit tax which during the first half of 2012 has been down by 23.3 percent. The ongoing shrink in retail sales reconfirms consumers’ falling purchasing power and saving trend.
Credit growth also continues decelerating as bad loans at a record 20 percent has forced banks to considerably tighten lending standards. Deposits although decelerating continue growing by 10 percent, mainly due to the transfer of deposits from migrants in crisis-hit Greece and a growing saving trend by consumers who fear harsher times ahead.
The escalating Eurozone crisis and especially the situation in Greece and Italy, Albania’s top trade partners and hosts to more than 1 million migrants, is expected to further aggravate matters. The IMF expects Italy, the destination of around half of Albanian exports to face recession in 2012 and 2013. Neighbouring Greece whose influence on Albanian trade and investments has been declining is expected to face another year of recession.
Privatization of some major assets such as the oil giant Albpetrol and some small and medium sized enterprises are government’s only hope for extra money this year which means lower cuts in the postponed budget review next September. Government is expected to review its GDP growth expectations to 3 percent, down from 4.3 percent currently and cut the overoptimistic 7.8 percent growth for revenues. Government expects to collect USD 150 million from the sale of the four HPPs and another USD 300 million from Albpetrol’s privatization.
Public debt at the legal ceiling of around 60 percent of the GDP and the rising deficit in the pension scheme remain two of the key challenges the Albanian government faces.
Albania enjoyed an average annual growth rate of 6 percent from 2003 to 2008 and was one of the few countries to register positive growth of 3.3 percent in 2009 in the outbreak of the global crisis. According to INSTAT, the 2010 growth was at 3.9 percent, down from 7.5 percent in 2008. Back in 2011, the Albanian economy grew by 3.1 percent, remaining at the same moderate growth rates for the third year in a row. Despite having preserved an annual moderate 3 percent growth rate from 2009 to 2011, the Albanian economy lags behind almost every EU aspirant in GDP per capita and purchasing power indicators.
The International Monetary Fund and the European Bank for Reconstruction and Development expect the Albanian economy to grow by 0.5 percent to 1.2 percent while the World Bank has made a 1.6 percent forecast, citing high public debt levels and spillover impacts from the crisis in Greece and Italy.
“Albania’s strong trade, investment and remittance ties to Greece and Italy are likely to continue to constrain growth in the coming year, while public debt is close to the statutory limit of 60 per cent of GDP, limiting the room for fiscal manoeuvre,” says the EBRD in its latest report.
