Albania's current account deficit will narrow to 8.6% of GDP in 2013

 Business Monitor International forecast real GDP growth of 2.1% in 2013 and 3.2% in 2014 in Albania, driven by a modest recovery in private consumption and healthy export growth. However, a more significant recovery will be restricted by the government's unfavourable...

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Albania's current account deficit will narrow to 8.6% of GDP in 2013



Balkans.com Business News Correspondent - 20.09.2013

 Business Monitor International forecast real GDP growth of 2.1% in 2013 and 3.2% in 2014 in Albania, driven by a modest recovery in private consumption and healthy export growth. However, a more significant recovery will be restricted by the government's unfavourable fiscal position and weak fixed investment, which will ensure that growth remains below potential for some time to come. 
Inflationary pressures will remain subdued over the coming months due to easing agricultural prices and low demand-pull price dynamics. We expect the National Bank of Albania (BoA) to lower its policy interest rate by 25bps to 3.25% by the end of 2013, as low prices allow the central bank to try to stimulate growth through adopting a more dovish monetary policy stance. Albania's current account deficit will narrow to 8.6% of GDP in 2013 and 8.2% in 2014, from 9.9% in 2012, as goods exports continue their gradual recovery and sluggish domestic demand restricts import growth. However, a faster correction in the country's current account will be undermined by weak external demand and Albania's modest economic recovery through 2014, which should prove supportive of imports. We believe the victory of the opposition Socialist Party in Albania's June parliamentary elections should increase the chances of the country being granted EU candidate status in 2013, after former Prime Minister Sali Berisha chose not to challenge the landslide victory. However, ongoing corruption and rising regional tensions will slow the country's political progress going forward, while ensuring that the full EU membership remains outside our 10-year forecast period. 
Major Forecast Changes 
Due to early signs that external and domestic demand is slowly picking up, we revise up our forecast for real GDP to expand by 2.1% in 2013 and 3.2% in 2014 in Albania, from 1.3% and 2.6% previously. We hold to our forecast for the central bank to lower the policy interest rate by a further 25bps to 3.25% by the end of 2013, but revise down our forecast for rates to be lowered to 2.50% in 2014, from 3.00% previously. The downgrade comes against the backdrop of increasingly dovish statements made by BoA Governor Ardian Fullani, who said the July interest rate cut was needed to 'create better conditions for the growth of domestic demand'. 
We have downgraded our forecast for Albania's current account deficit to come in at 8.6% of GDP in 2013 and 8.2% in 2014, from 8.8% and 8.4% previously, against the backdrop of weaker than expected domestic demand restricting imports and export growth beginning to recover, implying a faster correction in the merchandise deficit going forward.  BMI


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