“The current and expected meagre growth is not only a far cry from the pre-crisis performance but will not suffice to generate a visible income convergence,” says the Vienna Institute
TIRANA, March 17 – The Vienna Institute for International Economic Studies has made a pessimistic forecast about the Albanian economy in the next three years, citing a restrictive fiscal policy and reduced lending. In its latest forecast, the Vienna Institute has downgraded Albania’s 2013 GDP growth rate to 1 percent, down from 2.3 percent in the previous forecast and expects the Albanian economy to recover to 1.7 percent in 2014. The bad news is that the Vienna Institute, known for its optimistic forecasts about the Albanian economy, expects growth to slow down from 1.5 percent in 2015 and drop to 1 percent in 2016.
The forecasts for 2015 and 2016 are twice lower compared to what the Albanian government forecasts and much lower even compared to IMF prediction of an average growth of 2 percent.
The Vienna Institute expects the unemployment rate to climb to 15.5 percent by 2016 and inflation rate to remain at 1 percent from 2014 to 2016, a rate which is below the central bank’s target range of 2 to 4 percent and reflects sluggish domestic consumption, which is the key driver of Albania’s growth.
The current account deficit is expected to drop from 9.5 percent in 2014 to 7.8 percent of the GDP in 2016.
“We expect 2014 GDP growth in Albania to slightly accelerate to 1.7 percent; the reason being a mix of a statistical base year effect and strong foreign investment in the energy sector. However, restrictive fiscal policy and reduced lending activity owing to high levels of NPLs will likely curtail economic growth to 1.5 percent in 2015 and 1 percent in 2016. The current and expected meagre growth is not only a far cry from the pre-crisis performance but will not suffice to generate a visible income convergence,” says the Vienna Institute.
In late 2013, the Vienna Institute downgraded Albania’s growth on declining investments and austerity measures announced by the new Socialist Party-led government.
“The recent reduction in the current account deficit is not only due to a robust export performance but also due to falling imports. Especially, the reduction in the imports of machinery is worrisome as this is a further indicator of the lack of private investment,” said the Vienna Institute for International Economic Studies, one of the key centres for research on central, East and South-east Europe.
The Albanian government expects the country’s economy to moderately grow over the next four years and public debt to slightly drop. In its new 2015-2017 macroeconomic and fiscal framework, the Socialist Party-led government expects the country’s growth to drop to 0.7 percent in 2013, down from 1.2 percent in late December 2013 when it approved the 2014 budget. The forecast which is lower even compared to what international financial institutions expect comes after Albania registered a 2.3 shrink in the third quarter of 2013, the sharpest quarterly shrink in the past five global crisis year.
Public debt, including government arrears at 5 percent of the GDP, is estimated to have climbed to 70.5 percent of the GDP in 2013, and is expected to further climb to 72 percent of the GDP before going on a downward trend starting 2015.
The Albanian government’s expectations for the 2014-2017 period are rather more optimistic compared to international financial institutions which expect growth to range between 2 to 2.5 percent.
