The first quarter performance indicates the Albanian economy will continue registering growth rates at around the same levels of 2012 when at 1.6 percent the GDP recorded the worst annual rate since the collapse of the notorious pyramid schemes in 1997 and almost half of the average 3 percent annual growth from 2009 to 2011By Ervin Lisaku
TIRANA, July 8 – Fuelled by a double digit increase in post and telecommunications and in industry, the Albanian economy grew by 1.7 percent year-on-year in the first quarter of the year, registering one of the lowest first-quarter performances since the onset of the global crisis in 2009, according to the latest report by the country’s state Institute of Statistics, INSTAT. Back in the first quarter of 2012, the Albanian economy shrank by 0.4 percent year-on-year affected by severe weather conditions and escalating impacts from crisis-hit top trade partners Italy and Greece, revised INSTAT data show.
In the first quarters of 2009, 2010 and 2011 the Albanian economy grew by 4.5 percent, 1.3 percent and 5.6 percent respectively, and registered an average growth rate of 3 percent annually. Compared to the final quarter of 2012, the Albanian GDP grew by only 0.7 percent as performance in key sectors of the economy remained sluggish.
The construction, transportation, “trade, hotels and restaurants” registered negative growth rates compared to the first quarter of 2012, INSTAT data show.
The first quarter performance indicates the Albanian economy will continue registering growth rates at around the same levels of 2012 when at 1.6 percent, the GDP recorded the worst annual rate since the collapse of the notorious pyramid schemes in 1997 when the economy shrank by 11 percent and almost half of the average 3 percent annual growth from 2009 to 2011.
The first quarter performance was an expected result as exports were among the only positive indicators growing by 17 percent year-on-year. VAT which indirectly measures consumption dropped by a sharp 9.7 percent although recently published INSTAT data show retail sales grew by a sharp 13.7 percent year-on-year.
Foreign direct investment, migrant remittances and tourism revenue all registered negative growth rates in the first quarter of this year, unveiling a gloomy picture of the Albanian economy in early 2013 when a double digit increase in exports was the only positive indicator.
In addition, sluggish government revenue, bad loans having reached a record 24 percent and public debt standing at around 62 percent of GDP, lending striving to remain at positive growth rates, business and consumer confidence remaining poor and top trade partners Italy and Greece continuing facing severe crisis impacts make things harder.
Performance of key sectors
The services sector, which accounts for around 60 percent of the GDP, registered growth rates in “Post-telecommunication,” and “other services” segments but the “transport” and “trade, hotels and restaurants” sectors posted negative growth rates.
Post-telecommunication, accounting for 3.3 of the GDP, grew by 15.4 percent year-on-year and 1.4 percent compared to the final quarter of 2012. “Other services” which represent 27.5 percent of the GDP grew by 1.3 percent year-on-year and 1.3 percent compared to the final quarter of 2012.
The transport sector made up of railway, maritime, air and travel agencies, and accounting for 6.2 percent of the GDP, shrank by 2.9 percent compared to the first quarter of 2012, and was also down by 2.3 percent compared to the final quarter of the year.
“Trade, hotels and restaurants,” which INSTAT values at 21 percent of the GDP, shrank by 2.1 percent year-on-year and also declined by 2.3 percent compared to the final quarter, reconfirming the negligible impact tourism as one of the most promising sectors of the economy had on the GDP growth.
The industry sector dominated by manufacturing which accounts for 10.4 percent of the GDP and extractive branch with 1.4 percent grew by 14.8 percent compared to the first quarter of 2013, and was up by 3.3 percent compared to the previous final quarter.
Agriculture which employs around half of the Albanian population but provides only around 20 percent of the GDP continued having a positive contribution to GDP, growing by 2.1 percent year-on-year and 1.1 percent compared to the final quarter of the 2012.
The construction sector, once the key driver of the Albanian economy, but now accounting for only 11 percent of the GDP, declined by 4.8 percent year-on-year, but was up by 3.8 percent compared to the final quarter of 2012. In crisis since 2008, due to falling purchasing power especially from crisis-hit migrants, the construction sector has failed to recover during the past four years also due to lending standards becoming tighter as bad loans stand at a record 24 percent. Unpaid government bills for finished construction works and difficulty in obtaining new construction permits has also influenced.
Budget, GDP review expected
Sluggish government revenue indicates the new Socialist-Party-led government out of the June 23 general elections, expected to take over next September will have to review downward overoptimistic targets set on GDP and government revenues. The Albanian government has regularly cut the budget and reviewed downward its overoptimistic GDP targets during the past three years.
Incoming Prime Minister Edi Rama has announced he will hire an international company to audit the country’s troubled finances and provide a real picture of the country’s economy. The Socialist Party has also accused outgoing Prime Minister Berisha of approving wage and pension increases in the past few days, claiming that the government is leaving behind a financial black hole.
Albania’s budget deficit reached a record high for the first five months of this year on higher public investments ahead of the June 23 general elections and underperforming government revenues. A report issued by the Finance Ministry shows Albania’s budget deficit rose to 38.3 billion lek (Euro 266 million) in the first five months of this year, up 114 percent compared to the same period last year when it was at 17.8 billion lek. A sharp increase in public investments and a slowdown in government revenue which remain at negative growth rates are the main causes of the situation which risks further increasing Albania’s public debt stock, currently hovering above the former 60 percent ceiling.
At 3.1 percent, the Albanian government expects the country’s GDP to grow almost twice higher compared to international financial institutions and the country’s central bank which have forecast the Albanian economy will grow at around 1.8 percent citing spillover impacts from the Eurozone crisis and high public debt levels.
In its latest monetary policy report for the first quarter of 2013, the central Bank estimates growth will remain at around the same levels of 2012 with foreign demand and fiscal policy as the key drivers of growth. “The performance of consumption and private investments remains poor while growth below potential will keep inflation pressures at low levels and within the central bank’s 3ѱ percent target band.”
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 while in 2012 the GDP slowed down to 1.6 percent. 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.
Gov’s freezes spending
Government announced on Wednesday it has approved a decision which disciplines spending starting from July 15 in an effort to keep public finances under control after soaring pre-electoral spending. The decision which bans procurements for investments and cuts allowances to the public administration comes after continuous appeals by the Socialist Party which won the June 23 general elections and is expected to take over next September. In repeated calls, the Socialist Party has warned outgoing Prime Minister Berisha to be careful with decisions affecting the already troubled finances especially after the PM announced a wage and pension increase in the past few days.
Socialist Party officials say government collected around USD 200 million less in the first half of 2013 and that budget deficit is already at 90 percent of the target set for the whole of 2013.
