Albania
Albania: Macroeconomic Snapshot
1. Overview: Economic growth Albania in 2009-10 will be reliant on the demand from its main trading partners, namely the EU, where economic outlook has deteriorated further since March 2009. Apart from its negative impact on Albanian exports, the recession in these countries is expected to reduce remittances from Albanian migrant workers and inflows of foreign direct investment into the country. The Economist Intelligence Unit has revised down its forecast for real GDP growth to an average of 0.5% in 2009-10, owing to the expected deep recession in the Eurozone in 2009. For the same period inflation is forecast to drop to 1.8%. The current-account deficit is projected to decline to the equivalent of around 9.7% of GDP over the forecast period.
2. Growth Performance: Real GDP continued to grow strongly in 2008, at an estimated 6.5%, driven by the strong domestic demand. EIU forecasts that real GDP will contract by 1% in 2009, and expect only a modest recovery of 2% growth in 2010. The expected deceleration stems from the sharp downturn in Albania's main euro zone export markets: Italy, Greece and Germany. Domestic demand will slow sharply as the growth of bank credit continues to decelerate and workers' remittances drop. Government plans to maintain the recent increase in public investment are unrealistic in the light of the worsening fiscal environment, and capital investment is likely to decelerate.
3. Balance of Payments: The current-account deficit was the equivalent of 14.3% of GDP in 2008, as a sharp rise in imports of electricity, food and capital goods led to a larger merchandise trade deficit. After robust growth in exports in 2008, estimated at around 25% yoy in US$ terms, exports are set to contract in 2009, owing to weakening demand in Italy and Greece, Albania's top two export markets. The large trade deficits in 2009 will no longer be mitigated by increases in the current transfers surplus, as remittances from the Eurozone are projected to decrease. EUI forecasts annual current-account deficits in 2009-10 averaging at around 9.7% of GDP.
4. Inflation-Monetary Policy: CPI rose above the 4% upper limit set by the Central Bank of Albania in 2008, reflecting the impact of high global food and energy prices. Inflation has eased since then, falling to 1.9% year on year in April 2009, as price pressures have been contained by the sharp drop in international fuel and commodity prices. Average inflation reached 3.4% in 2008; EIU forecasts that inflation will decrease to an average of 1.8% in 2009-10 period.
5. Fiscal position: The IMF has continued to urge the local authorities to maintain a prudent medium-term fiscal framework, following expansionary budgets in 2008-09 to finance infrastructure investment. Budget deficit is projected to deteriorate; general government deficit is forecast at 4.7% of GDP in 2009.
6. Competition: Albania improved or remained steady in four of the available scored rankings, though, below the regional averages in five of the six available global rankings. According to the World Economic Forums Global Competitiveness Report, the three most problematic factors for doing business are inadequate supply of infrastructure, corruption and inefficient government bureaucracy.
1. Overview: Economic growth Albania in 2009-10 will be reliant on the demand from its main trading partners, namely the EU, where economic outlook has deteriorated further since March 2009. Apart from its negative impact on Albanian exports, the recession in these countries is expected to reduce remittances from Albanian migrant workers and inflows of foreign direct investment into the country. The Economist Intelligence Unit has revised down its forecast for real GDP growth to an average of 0.5% in 2009-10, owing to the expected deep recession in the Eurozone in 2009. For the same period inflation is forecast to drop to 1.8%. The current-account deficit is projected to decline to the equivalent of around 9.7% of GDP over the forecast period.
2. Growth Performance: Real GDP continued to grow strongly in 2008, at an estimated 6.5%, driven by the strong domestic demand. EIU forecasts that real GDP will contract by 1% in 2009, and expect only a modest recovery of 2% growth in 2010. The expected deceleration stems from the sharp downturn in Albania's main euro zone export markets: Italy, Greece and Germany. Domestic demand will slow sharply as the growth of bank credit continues to decelerate and workers' remittances drop. Government plans to maintain the recent increase in public investment are unrealistic in the light of the worsening fiscal environment, and capital investment is likely to decelerate.
3. Balance of Payments: The current-account deficit was the equivalent of 14.3% of GDP in 2008, as a sharp rise in imports of electricity, food and capital goods led to a larger merchandise trade deficit. After robust growth in exports in 2008, estimated at around 25% yoy in US$ terms, exports are set to contract in 2009, owing to weakening demand in Italy and Greece, Albania's top two export markets. The large trade deficits in 2009 will no longer be mitigated by increases in the current transfers surplus, as remittances from the Eurozone are projected to decrease. EUI forecasts annual current-account deficits in 2009-10 averaging at around 9.7% of GDP.
4. Inflation-Monetary Policy: CPI rose above the 4% upper limit set by the Central Bank of Albania in 2008, reflecting the impact of high global food and energy prices. Inflation has eased since then, falling to 1.9% year on year in April 2009, as price pressures have been contained by the sharp drop in international fuel and commodity prices. Average inflation reached 3.4% in 2008; EIU forecasts that inflation will decrease to an average of 1.8% in 2009-10 period.
5. Fiscal position: The IMF has continued to urge the local authorities to maintain a prudent medium-term fiscal framework, following expansionary budgets in 2008-09 to finance infrastructure investment. Budget deficit is projected to deteriorate; general government deficit is forecast at 4.7% of GDP in 2009.
6. Competition: Albania improved or remained steady in four of the available scored rankings, though, below the regional averages in five of the six available global rankings. According to the World Economic Forums Global Competitiveness Report, the three most problematic factors for doing business are inadequate supply of infrastructure, corruption and inefficient government bureaucracy.