UniCredit Sees Albania’s Economic Growth at 2.0% in ’10.

TIRANA, Feb 9؉talian banking group UniCredit sees Albania’s economy expanding by 2.0% this year, slower than the 3.5%growth in 2009, before the pace accelerates to over 5.0%in the medium term.
“The relatively closed Albanian economy was impacted with a delay by the global financial crisis and therefore recorded positive growth of 3.5% in 2009Ɖn terms of growthƷe see GDP growing at 2% this year, although economic weakness in a major trading partner like Greece is a risk to the outlook,” UniCredit said in a research paper released on Monday.
Heading into 2010 private consumption is weak as credit growth and investment activity has slowed, while unemployment has remained essentially flat at just under 13% over the course of the last 12 months. With the EU expected to return to growth in 2010, remittances inflows will gradually increase, boosting private consumption. In an effort to support domestic demand we expect the Bank of Albania to continue providing liquidity to the system and to lower policy rates, the lender said.
“Overall, we envisage the Albanian economy growing at over 5% in the medium term given the potential for catch-up (Albanian GDP per capita at purchasing power parity was only 25% of EU 27 average in 2008),” it added.
One positive for the Albanian economy is the banking sector which still has low loan/deposit ratios and can therefore finance loan growth relatively easily in the medium term.
However, in the medium-term Albania will have to build on recent structural reforms particularly in regard to tax collection rate which in general is low especially at the local government level, the lender said.
According to UniCredit, the main issue will be how to accelerate the integration of Albania into the global economy. The capital stock of the country remains poor despite recent investment in motorways. Ports, energy facilities and roads will all require investment in the long-term to boost productivity for Albania to be able to continue attracting investment from abroad in the long-term.
“This will be important if Albania’s very low share of manufacturing (below 10% of GDP) is to increase, especially given 90% of enterprises are small and medium sized,” it said.
“The quality of the labor force and the ability of the education system to produce the skilled cadre which would attract foreign investment is another bottleneck for future growth, while the definition and protection of property rights will also need to be improved if Albania’s undoubted potential is to be realized,” it added.