TIRANA, June 29 – The Vienna Institute for International Economic Studies has revised Albania’s 2017 growth prospects on recovering exports and ongoing energy-related investment.
In its latest summer forecast, the Vienna Institute, one of the top centers for research in Central, East and Southeast Europe, expects the Albanian economy to grow by 3.9 percent for 2017, up from 3.5 percent in the previous Spring forecast. The 2018 and 2019 prospects are only slightly more optimistic with growth expectations ranging from 4 to 4.1 percent of the GDP, in forecasts which are in line with the Albanian government’s estimates.
“In the Western Balkans, Albania is developing most dynamically with an expected growth rate of 3.9 percent, based on a positive export performance and investments such as the construction of the Trans Adriatic Pipeline or the Devoll Hydropower plant,” says the Vienna Institute.
The Trans Adriatic Pipeline and the Devoll Hydropower have been the main source of foreign direct investment in the country in the past couple of years, which peaked at about €1 billion in 2016.
The 2017 growth prospect in other EU aspirant Western Balkans countries is expected to range from 2.5 percent in Serbia and Montenegro to 2.6 percent in Macedonia, 3.2 percent in Bosnia and Herzegovina and 3.7 percent in neighboring Kosovo.
“Sluggish public investments have reduced growth prospects for the Western Balkans to around 2.9 percent for 2017. In Macedonia and Montenegro in particular, political turmoil after recent elections led to a standstill in public investments,” says the report.
Albania’s upgrade comes after the country settled its political deadlock ahead of the June 25 general elections which concluded with a victory by the center left Socialist Party with a clear mandate to govern the country on its own after ruling in coalition with their junior ally, the Socialist Movement for Integration, in the past four years.
“Despite the political turmoil, the Albanian economy has forged ahead supported both by domestic and external demand. Investments will continue on a positive path for the next two years. Monetary policy easing continues but the strong euroisation of the economy and weak credit growth is a constraint. Overall, taking into account the recent dynamics, growth is expected to edge up to 4 percent by the end of 2018,” says the Vienna Institute.
Albania’s exports are back to double digit growth rates this year thanks to the resumption of production by the country’s largest steel plant and a pickup in international oil and mineral prices.
However, credit is struggling to return to positive growth rates amid a high level of non-performing loans and poor demand by both businesses and households.
The high level of euroisation in the banking system, with euro-denominated loans and deposits accounting for about half of the total, remains a key barrier for the transmission of the central bank’s easier monetary policy as the key rate has been held to a historic low of 1.25 percent since a year.
The Institute also expects Albania’s inflation rate to pick up to the Albanian central’s bank 3 percent target by the end of 2019 and unemployment to drop to 13.6 percent.
The gap in the current account, a key indicator of a country’s economic health, is also expected to slightly narrow to about 9 percent of the GDP by 2019.
Albania has been growing between 1 to 3 percent in the past eight years compared to a pre-crisis decade of 6 percent annually, estimated to bring welfare to the EU aspirant Western Balkan country.
