TIRANA, Nov. 13 – The European Commission has upgraded Albania’s growth forecast for the next couple of years on energy-related investment and lower political risks following last June’s general elections preceded by a months-long political deadlock.
In its new Autumn Forecast on European economies, the EU’s executive arm expects the Albanian economy to grow by 4 percent for 2017, up 0.3 percent compared to its previous Spring report when the political stalemate ahead of the June elections was rated as one of the main short-term threats to the Albanian economy with a negative impact on consumption and investment prospects.
The 2018 outlook has also been slightly revised upward to 3.8 percent as the Commission expects major energy-related projects such as the Trans Adriatic Pipeline and a large hydropower plant approaching their completion to have a short-term negative impact on the country’s FDI, one of the key drivers of growth in past few years.
The EU’s executive arms expects investments in tourism facilities and in the extraction sector following a hike in commodity prices to compensate for the completion of the major TAP and Devoll hydropower plant projects by 2018.
The 2019 prospects are more optimistic as the Commission expects rising contribution from private consumption to lift Albania’s GDP growth to 4.2 percent and continue to register the highest growth rate among EU aspirant Western Balkans countries.
“Foreign direct investments in the energy sector are at a peak, resulting in an acceleration of economic activity in the current year. Exports continue growing at a fast pace, benefitting from expanding tourism and the strengthening economies of key trading partners,” says the Commission’s autumn report.
“Growing employment and higher wages bolster household spending. Investment and consumption are supported by an accommodative monetary policy. Inflation is low, but projected to rise gradually towards the official target. The fiscal policy stance is only slowly reducing the high level of public debt as a share of GDP,” it adds.
The Commission says the balance of risks to Albania’s growth outlook has moved from being tilted to the downside to the upside as political uncertainty has declined and the transmission of an accommodative monetary policy to lending growth seems to have gained traction.
“Following the general elections in June, a new government based on a clear electoral mandate has taken office. This has lowered the political risks associated with the fiscal projection. However, risks persist due to weaknesses in public finance management which pose a challenge for the execution of public budgets according to plan,” says the report.
The Commission also expects public debt, currently at 70 percent of the GDP and a key threat for the development stage of the Albanian economy, to drop to 66 percent of the GDP by 2019 and inflation target not to reach the 3 percent central bank target within the forecast horizon.
The European Commission’s 2017 forecast is in line with the Albanian government’s expectation and the economic performance for the first half of this year when the GDP grew by 4 percent thanks to some major energy-related investment, but the 2018 and 2019 outlook is slightly more pessimistic compared to the Albanian authorities’ forecast of growth ranging between 4.2 to 4.3 percent.
Growth in Albania’s top trading partner Italy, the host of some half a million Albanian migrants, is expected to slow down from 1.5 percent in 2017 to 1 percent in 2019 with a likely negative impact on the Albanian economy which is very sensitive to developments in the neighboring country across the Adriatic as about half of Albania’s exports are destined there and about a third of imports are carried out through Italy.
The GDP in Greece, Albania’s traditional second main trading partner is expected to grow between 1.6 percent to 2.5 percent in 2017-2019 following one of its worst recessions that saw the Greek economy contract by a quarter in the past decade with a negative impact also for some half a million Albanian migrants there and trade and investment links between the two countries.
International financial institutions such as the World Bank, the IMF and the EBRD expect the Albanian economy to grow by 3.7 percent to 4 percent over the next few years on lower FDI related contribution to the economy.
