TIRANA, Feb. 9 – The European Commission has revised downward Albania’s economic outlook for the next couple of years for the second time in a row, citing volatile business and consumer confidence, sluggish lending and a slowdown in the extractive industry due to a slump in international oil and base metal prices.
In its latest Winter Economic Forecast report, the European Commission left unchanged Albania’s 2.7 percent GDP growth forecast for 2015, but revised the 2016 and 2017 outlook downward by 0.1 percent and 0.3 percent respectively compared to its previous autumn report.
The Commission expects the Albanian economy to grow by 3.2 percent in 2016 and slightly accelerate to 3.5 percent in 2017 compared to the Albanian government and IMF forecasts of 3.4 percent in 2016 and 4 percent in 2017.
At 3.2 percent in 2016 and 3.5 percent in 2017, Albania’s growth is projected to be 0.1 percent lower compared to the average annual growth in the five EU candidate countries which also include Turkey, Macedonia, Montenegro and Serbia.
“Economic growth is on an upward trajectory because of surging investment and a positive contribution from net exports. Foreign direct investment, focusing on some major projects, is set to remain an important source of growth. However, economic sentiment remains volatile and lending to the economy subdued, while the persistently low oil price triggers adjustment in the extractive sector. Fiscal consolidation remains high on the policy agenda,” says the Commission.
The report warns the extractive industry, which has been adjusting to lower prices for oil and other commodities by cutting production, will likely be a drag on economic growth after having been an important contributor to growth over the past five years.
The good news is that both Italy and Greece, the country’s top trading partners, are projected to recover in the next couple of years with positive effects on Albania’s trade exchanges, investments and remittances from the two neighboring countries, host to about 1 million Albanian migrants.
Italy, which is Albania’s top trading partner accounting for half of Albania’s exports and a third of imports, is set to gain momentum in 2016 and 2017 as domestic demand strengthens. The European Commission expects the Italian economy to accelerate to 1.4 percent in 2016, up from 0.8 percent in 2015 and slightly slow down to 1.3 percent in 2017.
Meanwhile, neighboring Greece which escaped its six-year recession in 2014 appears to have experienced a less severe than expected downturn in 2015 when growth was revised up to zero.
“Resilient consumption, the successful recapitalization of banks, steady implementation of structural reforms under the new ESM [European Stability Mechanism] programme and progress with privatization should support the rebound in confidence and bring positive growth and stronger fiscal results by the second half of 2016,” says the Commission.
Greece, whose position as Albania’s second largest trading partner has considerably weakened in the past crisis years but remains the top foreign investor in Albania, is expected to contract by 0.7 percent in 2016 before turning to positive growth of 2.7 percent in 2017.
