TIRANA, March 13 – The Vienna Institute for International Economic Studies has slightly downgraded Albania’s GDP growth forecast for the next three years and warned of the risks that the much-rumored public private partnerships could have on the country’s economy over the long run.
In its new Spring forecast published this week, the Vienna Institute, one of the top centers for research in Central, East and Southeast Europe, expects the Albanian economy to have grown by 3.9 percent in 2017 and recover to 4.1 percent for 2018 driven by consumption, large infrastructure projects and tourism.
The 2018 and 2019 forecasts have each been downgraded by 0.1 percentage points compared to last November’s prediction and the 2020 expectations set at 3.9 percent, yet remaining the highest among the six EU aspirant Western Balkan economies.
The Vienna Institute’s forecasts are almost in line with the Albanian government’s optimistic scenario of growth picking up to 4.2 percent in 2018 and gradually accelerate by 0.1 percentage points each year to reach 4.5 percent by 2021 when its second consecutive term of office expires.
The World Bank and the IMF predict the Albanian economy will slow down to between 3.5 percent and 3.7 percent this year as two major energy-related projects, the Trans Adriatic Pipeline and a large hydropower plant, complete their investment stage by the end of this year.
“The drivers of growth will continue to be consumption, big infrastructure projects and tourism. The investments in infrastructure will be channelled through public–private partnerships, which boost growth in the medium term, but pose certain risks in the longer run,” says the Vienna Institute.
The Albanian government’s ambitious €1 billion PPP project has come under fire by international financial institutions and economy experts worried over the effect it will have on the public debt and efforts to bring it down to 60 percent by 2021, down from a current 70 percent, a level considered too high for the current stage of Albania’s economic development.
The IMF has recently advised the Albanian government to stop its ambitious PPP project on upgrading road, health and education infrastructure until guarantees are put in pace to reduce potential risks to public finances.
The Vienna Institute says it expects Albania, an EU candidate that is hoping to launch accession talks with the European Commission during this year, to join the EU bloc by 2025.
“There are high expectations that after five decades of self-imposed isolation and three decades of involuntary exclusion, Albania will become part of the EU by 2025,” says the Vienna Institute.
In its latest Western Balkan enlargement strategy, the European Commission hints only Serbia and Montenegro could join the EU by 2025.
Enlargement prospects remain pessimistic in the short and medium-run considering internal developments in the bloc with the Brexit, the migrant and financial crises as well as rising populism high on the agenda.
Currently, only Serbia and Montenegro are conducting accession talks with the European Commission among regional Western Balkan aspirants, with EU candidates Albania and Macedonia hoping to launch negotiations this year and Bosnia and Herzegovina and Kosovo still potential candidates.
The Vienna Institute expects Albania’s inflation rate to meet the central bank’s 3 percent target by 2019 and unemployment rates to drop to 12 percent by 2020.
The Albanian economy has been growing between 1 to 4 percent in the past nine years compared to a pre-crisis decade of 6 percent annually, estimated to bring welfare to the EU aspirant Western Balkan country.
Commenting on the forecasts for Central, East and Southeast Europe, Richard Grieveson, a Vienna Institute economist said ‘The risks to our upbeat forecast are numerous, and mostly to the downside.”
“Our biggest concerns are a potential trade war and that global central banks do not exit safely from their ultra-loose monetary policies. Any spike in global interest rates would be dangerous for the numerous countries in CESEE with high private and/or public external debt,” Grieveson said as quoted in a statement.
Serbia, the region’s largest economy is expected to grow by 2.8 annually over the next three years amid ‘slow recovery and tenuous political stability.
The six Western Balkan countries as a whole are expected to grow by about 3.2 percent annually from 2018 to 2020, a rate which the World Bank has predicted could take the region up to six decades to catch up with the average EU income.
