Includes 3 FREE quarterly updates
Core Views
Albania’s relatively low level of trade and financial integration with Western Europe will not protect its economy from the marked deterioration that has occurred in eurozone macroeconomic and financial market conditions over the past few months. The eurozone appears to have slumped into recession, with Italy, Albania’s largest export market, a focus of the region’s current woes.
The formation of a new centre-right party which looks set to receive the backing and leadership of President Bamir Topi adds new dynamism to Albania’s political landscape and improves the electoral chances of the opposition Socialist Party. However, the bigger issue for Albania will be the conduct of upcoming elections, rather than their actual result. A controversial election in 2013 would scupper the country’s chances of being granted EU candidate status and add to the damage already done to the country’s accession ambitions.
Key Risks To Outlook
Albania’s strong economic and financial links to Greece and Italy remain a key risk to our outlook, even beyond the extent to which we have factored this exposure into our forecasts. On top of being the source of economically important remittance inflows, Albania’s commercial banking sector is dominated by Greek subsidiaries. An uncoordinated credit event in Greece would put those parent banks under pressure, possibly leading to a sharp withdrawal of credit from their peripheral operations.
Core Views
Albania’s relatively low level of trade and financial integration with Western Europe will not protect its economy from the marked deterioration that has occurred in eurozone macroeconomic and financial market conditions over the past few months. The eurozone appears to have slumped into recession, with Italy, Albania’s largest export market, a focus of the region’s current woes.
The formation of a new centre-right party which looks set to receive the backing and leadership of President Bamir Topi adds new dynamism to Albania’s political landscape and improves the electoral chances of the opposition Socialist Party. However, the bigger issue for Albania will be the conduct of upcoming elections, rather than their actual result. A controversial election in 2013 would scupper the country’s chances of being granted EU candidate status and add to the damage already done to the country’s accession ambitions.
Key Risks To Outlook
Albania’s strong economic and financial links to Greece and Italy remain a key risk to our outlook, even beyond the extent to which we have factored this exposure into our forecasts. On top of being the source of economically important remittance inflows, Albania’s commercial banking sector is dominated by Greek subsidiaries. An uncoordinated credit event in Greece would put those parent banks under pressure, possibly leading to a sharp withdrawal of credit from their peripheral operations.
Executive Summary
Core Views
Key Risks To Outlook
CHAPTER 1: POLITICAL OUTLOOK
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
EU Candidacy A False Dawn
On October 10 2012, the EU Commission recommended that Albania receive EU candidate status subject to completing key reforms ahead of the 2013 parliamentary elections. With the recommendation also hinging upon the support of EU member states in December 2012, Albania will need to show further progress and implement numerous political reforms to open accession negotiations.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Stumbling Towards The EU
We expect Albania to continue progressing towards EU membership over the next decade, though caution that forward momentum will be sluggish. Lack of institutional development and endemic corruption remain key challenges to stability over the long term, whose presence will diminish efforts to address systemic problems regarding weak governance..
CHAPTER 2: ECONOMIC OUTLOOK
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Eurozone Instability Fuelling Bleak Growth Outlook
While the Albanian economy enjoyed a mild recovery in Q212, with GDP increasing by 2.1% y-o-y, we believe the outlook for the country's near-term growth trajectory remains downbeat. In line with the bleak macroeconomic picture we have been painting of Albania (see our online service, July 2 2012, 'Growth Outlook Remains Downbeat'), deteriorating economic conditions in the eurozone have led us to revise down our growth forecasts in 2012 and 2013. We now forecast growth to be just 0.9% in 2012, and 1.5% in 2013, down from 2.4% and 3.0% previously.
TABLE: ECONOMIC ACTIVITY
Rising CPI Points To Interest Rate Freeze
Whilst our dovish view of Albanian monetary policy was vindicated by the Bank of Albania (BoA)'s decision to cut the benchmark policy interest rate to a record low of 4.00% in July, we believe any further interest rate cuts are unlikely for the time being. The BoA cut interest rates five times in the 12 months to September 2012, though fears of rising inflationary pressures will deter monetary loosening.
TABLE: MONETARY POLICY
Balance of Payments
No End To Deficit In Sight
With export performance set to prove lacklustre as a result of the eurozone recession, we see little chance for Albania to significantly reduce its already bloated trade and current account deficits anytime soon. Whilst import growth will also remain muted, an over reliance on trade flows and remittances from Italy and Greece will weigh on Albania's external accounts, although we don't see a problem in it being financed through Albania's financial account inflows.
TABLE: CURRENT ACCOUNT
CHAPTER 3: 10-YEAR FORECAST
The Albanian Economy To 2021
Regional Outlook Weighs On Trend Growth
Though we project real GDP to expand by 4.3% between 2013 and 2022, we caution that Albania is expected to remain one of the least developed states in south eastern Europe.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
CHAPTER 4: BUSINESS ENVIRONMENT
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
Market Orientation
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: EMERGING EUROPE – ANNUAL FDI INFLOWS
TABLE: TRADE AND INVESTMENT RATINGS
Operational Risk
TABLE: TOP EXPORT DESTINATIONS
CHAPTER 5: BMI GLOBAL ASSUMPTIONS
Global Outlook
Mixed Signals For The New Year
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST
Core Views
Key Risks To Outlook
CHAPTER 1: POLITICAL OUTLOOK
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
EU Candidacy A False Dawn
On October 10 2012, the EU Commission recommended that Albania receive EU candidate status subject to completing key reforms ahead of the 2013 parliamentary elections. With the recommendation also hinging upon the support of EU member states in December 2012, Albania will need to show further progress and implement numerous political reforms to open accession negotiations.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Stumbling Towards The EU
We expect Albania to continue progressing towards EU membership over the next decade, though caution that forward momentum will be sluggish. Lack of institutional development and endemic corruption remain key challenges to stability over the long term, whose presence will diminish efforts to address systemic problems regarding weak governance..
CHAPTER 2: ECONOMIC OUTLOOK
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Eurozone Instability Fuelling Bleak Growth Outlook
While the Albanian economy enjoyed a mild recovery in Q212, with GDP increasing by 2.1% y-o-y, we believe the outlook for the country's near-term growth trajectory remains downbeat. In line with the bleak macroeconomic picture we have been painting of Albania (see our online service, July 2 2012, 'Growth Outlook Remains Downbeat'), deteriorating economic conditions in the eurozone have led us to revise down our growth forecasts in 2012 and 2013. We now forecast growth to be just 0.9% in 2012, and 1.5% in 2013, down from 2.4% and 3.0% previously.
TABLE: ECONOMIC ACTIVITY
Rising CPI Points To Interest Rate Freeze
Whilst our dovish view of Albanian monetary policy was vindicated by the Bank of Albania (BoA)'s decision to cut the benchmark policy interest rate to a record low of 4.00% in July, we believe any further interest rate cuts are unlikely for the time being. The BoA cut interest rates five times in the 12 months to September 2012, though fears of rising inflationary pressures will deter monetary loosening.
TABLE: MONETARY POLICY
Balance of Payments
No End To Deficit In Sight
With export performance set to prove lacklustre as a result of the eurozone recession, we see little chance for Albania to significantly reduce its already bloated trade and current account deficits anytime soon. Whilst import growth will also remain muted, an over reliance on trade flows and remittances from Italy and Greece will weigh on Albania's external accounts, although we don't see a problem in it being financed through Albania's financial account inflows.
TABLE: CURRENT ACCOUNT
CHAPTER 3: 10-YEAR FORECAST
The Albanian Economy To 2021
Regional Outlook Weighs On Trend Growth
Though we project real GDP to expand by 4.3% between 2013 and 2022, we caution that Albania is expected to remain one of the least developed states in south eastern Europe.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
CHAPTER 4: BUSINESS ENVIRONMENT
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
Market Orientation
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: EMERGING EUROPE – ANNUAL FDI INFLOWS
TABLE: TRADE AND INVESTMENT RATINGS
Operational Risk
TABLE: TOP EXPORT DESTINATIONS
CHAPTER 5: BMI GLOBAL ASSUMPTIONS
Global Outlook
Mixed Signals For The New Year
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST
