European Commission conducted analysis on the performance of the Albanian economy

The European Commission, in the third quarterly report on the performance of candidate countries and potential candidates, has conducted an analysis of the performance of the Albanian economy, where it has concluded that investments are slowing down, reflecting the completion of major energy projects. While growth in the first half of the year was driven by energy production and processing industry.

According to the report, the real GDP in Albania grew by 4.3% year-on-year in the second quarter as it grew by 4.5% in the first three months. On the demand side, growth was largely driven by household consumption, which strengthened its stable performance at 3.3% per annum, driven by employment growth, moderate inflation and low interest rates. Fixed capital formation, which still benefited from foreign direct investment in the energy sector in the first quarter, slowed down to 1.5% (annual growth) from 4.5% in the first quarter.

By contrast, government consumption shrank by 3.4% on a yearly basis in the second quarter. Exports of goods and services continued their recovery in the second quarter by 3.9%, while imports of goods and services grew slower by 2% on an annual basis.

Exports have increased their share in gross domestic product to 34.1%, while imports have fallen slightly but remain at their level of almost 50% of GDP. On the supply side, power generation and processing industry contributed significantly to the growth of the economy in the current 2018 period. Construction slowed down, as well as the services sector, mainly due to the high comparative base, while both sectors continued to contribute positively to economic performance.

Although employment growth slowed, the unemployment rate continued to decline, reaching 12.9%, the lowest since 2012. Even youth unemployment continued to decline from 34% in 2015 to 22.6%, although remaining at high levels. Private sector wages increased in many segments, while public sector wage growth slowed down to 0.2%, following the strong growth in 2017 and that of the first quarter in 2018.

Current account deficit narrowed to 7% of GDP, from 7.9% in the first quarter, due to the slowdown in imports and export growth.

Lending to the private sector remains weak, due to low demand and tight lending policies from banks, albeit at slower pace than in 2017, down to 12.9% in August.

The banking system is consolidating with two unions that completing in 2018 and the number of banks was reduced from 16 to 14. The banking sector’s exposure to Turkey is low, with only 6.6% of the total assets related to Turkish companies.

The budget revenues increased by 3.1 per cent annually in the first 8-month period of 2018 and were negatively affected by the depreciation of the euro, especially VAT and customs revenues. The public debt dropped to 69.3% of GDP in late June, from 70% at the end of 2017.

/Klara Ruci/

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