Population 3.243 million
GDP 12.39 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
3.5 |
3 |
0.6 |
1.8 |
|
Inflation (yearly average) (%)
|
3.5 |
3.4 |
2 |
2.5 |
|
Budget balance (% GDP)
|
-3.1 |
-3.5 |
-3.3 |
-3.8 |
|
Current account balance (% GDP)
|
-11.9 |
-12.2 |
-11.7 |
-11.5 |
|
Public debt (% GDP)
|
57.8 |
58.6 |
60.5 |
60.8 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Limited external debt
- Investment efforts, particularly in infrastructures
- Low inflation
- Good prospects regarding integration in European Union
WEAKNESSES
- Infrastructure shortcomings, especially in energy
- Worrying public debt and current account deficit
- Shortcomings in the legal system and in the fight against corruption
- Commercial and financial dependence on euro zone (especially Italy and Greece)
Risk assessment
An economy weakened by the euro zone crisis
After solidly resisting the European recession in 2009, in 2012 Albanian growth slowed significantly due to the impact of the recession in the euro zone, to which 80% of exports are destined and which is the leading investor in the country. Household consumption has been weakened by the decline in remittances from expatriates, living mostly in Italy and Greece. Persistent difficulties in the external environment, coupled with depressed household consumption and slower credit expansion, will continue to put pressure on growth in 2013. The Central Bank interest rates are being kept historically low in order to stimulate consumer lending without, for the moment, generating any conclusive results. These initiatives could continue in 2013 if internal demand were still slowing.
On the supply side, weakness in the construction sector observed in 2012 is expected to continue in 2013, due to the lack of sufficient domestic demand. The banking sector remains robust but it is vulnerable to any prolongation of the European banking crisis, given the preponderance of European bank subsidiaries in the Albanian system.
Meanwhile, foreign investment is affected by a business climate that is among the least favourable in the region, with significant corruption, compounded by inadequate electricity supply and weak infrastructures.
Finally, as in 2012, inflation will remain contained in 2013 due to still sluggish domestic demand and stable world raw material prices.
High but stable fiscal and external deficits
The fiscal deficit will remain significant and relatively stable. Fiscal revenues, notably from VAT, will rise only slightly given modest recorded growth. Some spending will continue to be cut but that linked to the elections will push the deficit up slightly in 2013. This deficit is mainly financed by commercial banks. The country is not currently planning to turn to the IMF for help, even if the capacity for domestic financing is gradually declining. Some privatisations, especially of the Albpetrol oil company in 2012, will boost revenues. The country also benefits from annual loans from the World Bank, particularly to support the electricity sector.
In late 2012, the government announced the removal of the maximum public debt threshold, equivalent to 60% of GDP. This threshold was already exceeded in late 2012, which in turn increases the country’s vulnerability.
With regard to the external accounts, the major crisis undergone by Albania’s two key commercial partners, Greece and Italy, largely curbed export growth in 2012. This phenomenon is likely to continue into 2013 pushing the country to redirect its exports, namely to the Balkans, Turkey and China. Nonetheless, the trade deficit will fall slightly on the back of slower domestic demand as it will limit imports. Transfers fell in 2012, hit by problems in the host countries for Albanian workers, but are expected to stabilise in 2013.
A complicated political context
Albania’s political situation remains dominated by its prospects for EU accession. In late 2012, the European Council decided that Albania will acquire the candidate status only if the country meets certain conditions. A certain number of reforms are still required, especially concerning the role of Parliament, independence of the judiciary and the fight against corruption. Parliamentary elections, to be held in mid-2013, are key to the future of this candidacy. The EU was alarmed by the 2012 election of the Albanian president, a close ally of the current Prime Minister, Sali Berisha. This election was boycotted by some parties, notably the socialist opposition. The parliamentary elections are set to be tight. The governing coalition, led by Sali Berisha, might be defeated by the socialists given the current economic difficulties.
