The Vienna Institute for Economic Studies has become the next international body to downgrade Albania’s economic growth forecast with a prediction of 3.5% growth this year, a decrease of 0.7 percentage points.
In a revision published this week, growth was downgraded, in part due to the war in Ukraine and its impact on trade.
“Albania has a low volume of trade with Russia and Ukraine, but it will experience negative spill-overs from the war in Ukraine, on account of its strong trade relations with the EU,” the report states.
It notes that monetary policy has shifted towards higher interest rates, and the government’s fiscal stimulus measures will go some way to support consumption, thus absorbing some of the shock. This is also bolstered by exports of minerals and fuel which have picked up.
That said, the institute says the country’s current account balance will deteriorate.
“According to the baseline scenario, inflation this year will be 6% and growth 3.5%. In the medium term, inflation will fall to 3% and growth will rise to 3.9%,” it states.
The International Monetary Fund (IMF) also predicted possible issues for Albania in a recent report.
The IMF state that inflation in the country will reach 5.5% from 2% by the end of the year. High prices will continue into 2023 while inflation will drop to around 3.3%. The rate of inflation is expected to remain around 3% until 2027 the report noted.
These are the highest levels seen since 2004 when IMF started recording data for Albania. Between 2004 and 2021, inflation has fluctuated between 1.3% and 2.7%.
Earlier this month, the World Bank (WB) issued a warning to Albania regarding its high debt levels.
In its latest report on Central Europe entitled “War in the Region”, the WB noted that debt in Albania continued to climb and this could increase the risk of refinancing.
“Pubic debt increased further in 2021, reaching 78.4% of the GDP. The government suspended the fiscal rule for reducing debt and issued a Eurobond of EUR 650 million…At the current level, high government debt is at a significant refinancing risk,” the report reads.
The WB also lowered its forecast for Albania’s economic growth, at 3.2% domestically. This will rise to around 3.4% in 2023, the bank said.
World Bank Issues Warning to Albania over High Level of Debt
