TIRANA, Aug. 12 – The escalating crisis in neighboring Greece will affect Albania’s growth by at least 0.25 percentage points, Albania’s central bank says in its latest analysis.
While the neighboring country has in principle reached a new €85 bln three-year bailout deal with its creditors, the escalation of the crisis in recent months in Greece is expected to have a real impact on the Albanian economy in the second half of this year as the country’s second top trading partner, main foreign investor, and the host of some 500,000 migrants who have been the key source of remittances.
“The direct channels of the impacts of the Greek crisis on Albania are expected to be related more to the real sector in the form of spillover effects on exports and remittances, rather than the financial sector,” says the central bank in its August monetary policy.
The exposure of the Albanian economy toward Greece has considerably been reduced since the onset of the global financial crisis in 2008 and six consecutive years of recession which contracted the Greek economy by around a quarter and took unemployment rate to 25 percent.
The share of Greek-owned banks in Albania has dropped by 10 percent to 15 percent in the past seven years while remittances have undergone even a sharper contraction falling from 45 percent of the total in 2008 to only around a quarter at the end of 2014, says the central bank.
Although maintaining its top foreign investor position, the stock of Greek foreign direct investment in Albania dropped to 26 percent of the total in 2013, down 1 percent compared to 2008.
The central bank says exports to the neighboring country, already on a downward trend, will not be severely affected as almost half of them are intermediary or semi-finished goods regulated by long-term contracts. However, exports of consumer goods and services could halve while the inflow of remittances in the second half of the year could stop because of the cash withdrawal limits in Greek banks, warns the Bank of Albania.
Transport, communication and insurance services with Greece are expected to be affected in parallel to consumer goods.
Central bank governor Gent Sejko says the escalation of the crisis in neighboring Greece has only had a psychological impact on Albania’s banking system with sporadic deposit withdrawals from the three Greek bank subsidiaries.
Speaking about the deal Greece reached with its creditors, governor Sejko said the situation would also have a positive impact on Albania.
“The deal will calm down the situation of parent banks in Greece and this will also be reflected on the general psychological condition in Albania as well as in the banks’ activity which is the most delicate part related to financial stability,” said Sejko.
The Albanian government and the IMF have already revised Albania’s GDP growth for 2015 to 2.7 percent, down from an initial 3 percent on lower international oil prices affecting exports and the deterioration of the situation in Greece.
Experts say the spillover risks from the Greek crisis are relatively low and mainly affect exports and remittances, already on a downward trend since Greece plunged into recession in 2008. Meanwhile, the three Greek bank subsidiaries in Albania are considered safe because of operating as independent from their parent banks.
