The World Bank has reduced Albania's economic growth forecasts in the 2019. In the autumnal periodic economic report for the Western Balkans, the World Bank expects economic growth of 2,9%, rather than the budgeted 3,7%.
According to the INSTAT (Albanian Statistics Institute, ed.), The Albanian economy grew by 2,2% in the first quarter and by 2,3% in the second quarter of this year. It is estimated that the deficit in the energy sector was the main factor in the slowdown in growth. For the next two years, the World Bank expects near-average growth of the 3,5%, considered as the potential growth rate of the Albanian economy.
The main development areas
After settling on the 4,1% in the 2018, the annual growth rate for the 2019 should slow down to 2,9%. A drastic reduction in rainfall in the first half of the year halved the production of hydroelectric energy and slowed the rate of GDP growth by over half a percentage point. Services and construction have made the greatest positive contribution to economic growth.
Despite growing political tensions, domestic demand has strengthened. Net exports, on the other hand, recorded a -0,4%, as the stagnation of economic growth in trading partner countries reduced exports of traditional goods and at the same time reduced electricity exports.
The improvement in employment, the increase in wages and consumer credit favored private consumption, which contributed positively to the growth of 2,1% GDP.
Better lending conditions and public spending on infrastructure have encouraged investment, contributing percentage points to the economic growth rate with 0,5.
Despite the slowdown in economic growth, job creation has strengthened and unemployment has fallen.
After a slight slowdown in the first quarter of the 2019, the employment growth rate accelerated to 3,4% in the second quarter, thanks to the creation of new jobs in the services sector and in agriculture. However, the gap between the male and female labor force remains wide.
In the second quarter, unemployment reached a new all-time low of the 11,5%. Real wages have risen by 3,4% on average, mainly in the services sector (trade, transport and tourism).
Foreign direct investment should remain unchanged, with the completion of the investment phase of large projects in the transmission of energy and gas.
From the 2016 the foreign exchange reserves were stable and sufficient to cover the equivalent of over six months of imports of goods and services. The huge reserves help alleviate the risks created by the high foreign debt, which should reach 65,7% of GDP in the 2019.
The pace of economic growth is expected to slow to around 3,5% in the 2020-2021 period, as it will increasingly depend on the increase in labor income which favors private consumption.
In the short term, the restoration of the electricity balance to more normal levels will facilitate the trade balance and net exports.
The recent positive trends in Albanian exports resulting from market expansion will be more moderate, reflecting the stagnation of world economic growth rates. Growth will also be positively influenced by investments, stimulated by public projects and private investments, but this positive effect will go hand in hand with continued progress in structural reforms, such as the judiciary and the financial sector.
By the 2021, the budget deficit is expected to fall to 1,7% of GDP. The medium-term fiscal policy has calculated that fiscal consolidation will continue until the 2022 and should generate cost savings for salaries, goods and services and transfers to social security beneficiaries and local administrations. Furthermore, the progressive fiscal consolidation combined with continued economic growth is expected to reduce the debt-to-GDP ratio to 60% after the 2022.
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