TIRANA, Nov. 1 – U.K.-based BMI Research, a unit of Fitch, has upgraded Albania’s 2017-2018 economic outlook on a better-than-expected external environment, especially main trading partner Italy with a positive impact for 2017.
In an update to its latest Albania country risk report, the Fitch unit says it expects Albania’s growth to pick up to 4 percent in 2017, up from a previous estimate of 3.6 percent, with the new prediction almost on par with the Albanian government’s forecast of 3.9 percent.
The 2018 forecast is slightly more pessimistic with London-based BMI expecting the Albanian economy to slow down to 3.7 percent, down from a previous forecast of 3.3 percent last September. About 0.5 percent lower compared to the Albanian government’s forecast of 4.2 percent, BMI says Albania’s 2018 forecast will be negatively affected by developments in Italy, the country’s top trading partner where the 2018 growth is expected to slow down to 1 percent, down from an estimated 1.4 percent this year over uncertainties surrounding next May’s general elections in Eurozone’s third largest economy.
“The Italian economy will also likely be negatively impacted by political uncertainty surrounding elections, which must be held by May 2018, and we are forecasting that growth will slow to 1 percent for the year. As such, we believe that the external tailwinds that have lifted the Albanian economy over recent quarters will subside somewhat,” says BMI research.
BMI upgraded Italy’s growth forecast to 1.4 percent for 2017, up from a previous 0.9 percent on upward revisions across the eurozone, where economic activity has seen a broad based acceleration in recent quarters.
Recessions in Italy and Greece, Albania’s top trading partners, had a huge impact on the Albanian economy in terms of trade exchanges, remittances, and foreign investment flows for several consecutive years following the 2008 global financial crisis.
The host of some 500,000 Albanian migrants, the Albanian economy is very sensitive to developments in Italy as about half of Albania’s exports are destined there and about a third of imports are carried out through Italy. The neighbouring country across the Adriatic is also one of the top foreign investors in the country with Italian-owned companied dominating the foreign-owned companies in the country.
“The Albanian economy continues to benefit from a better-than-expected external environment and we have upgraded our 2017 growth forecasts as a result,” the Fitch unit says in its latest forecast.
“While external tailwinds will subside somewhat in 2018, a continuation of easy monetary policy and an improved political risk profile following the June election will support investment and private consumption,” it adds.
In its latest country report, BMI Research said EU candidate Albania which is hoping to open accession talks as a long-awaited judiciary reform is about to start, is unlikely to join the EU in the next decade. The conclusion which comes as no surprise considering internal developments in the block with the Brexit, the migrant and financial crises as well as rising populism and most recently developments in Spain where Catalonia is seeking independence.
The Albanian economy grew by 4 percent in the first half of this year, but the recovery of household consumption was twice lower, according to data published by INSTAT, the state statistical institute.
The 4 percent growth rate in the second quarter of this year was again triggered by some major energy related investment such as the Trans Adriatic Pipeline and the Devoll Hydropower plant with no immediate positive impacts for the overwhelming majority Albanian households despite investment and employment benefits.
Other international financial institutions such as the World Bank expect the Albanian economy to grow by 3.6 percent in 2017 and slow down to 3.5 percent in the next couple of years as major energy related projects that have been driving growth over the past couple of years taper off by the end of 2018.
The ruling Socialist Party government expects the country’s growth to average to at 4.5 percent in the next four years and accelerate to 5.5 to 6 percent by 2021 at the end of its second consecutive mandate, driven by foreign direct investment, consumption and tourism.
