Weekly Briefing, Vol. 46. No. 2 (Al) December 2021
Albanian economy in 2021: trying to rebound
Summary
As of December 2021, not all the economic datasets are available by the authorities; however, with what is already published there can be drawn some conclusions on the shape of the Albanian economy for this year. For the purpose of this briefing there are analyzed the Gross Domestic Product (GDP), Consumer Price Index (CPI), trade volume, dependence on foreign currency, remittances, poverty rate and the effects of the elections in the economy. This overview displays a comparison of national and international reports for an understanding of the Albanian economy in general and specific terms during 2021.
Introduction
In the past 12 months, all the sectors of the economy in Albania were trying to recover from the losses of 2020. Indeed, each sector was affected by the ramification of the COVID-19 pandemic and consequent restrictions, some more than others. While from internal reports there are indications of improvements in certain sectors, they almost never present a comprehensive overview of the entire economic situation. International reports on the other hand, are more specific and more detailed, also describing the domino effect of the economic downturn, from which Albania is trying to rebound.
A year in review in economic terms
The GDP in Albania was worth 14.80 billion US dollars ($) in 2020, according to official data from the World Bank and is expected to reach 15.87 billion $ by the end of 2021.
As the GDP grew at the fastest rate on record in the second quarter (Q2) of 2021, momentum seemingly carried over into the third quarter. Both merchandise imports and exports expanded at robust rates also in the third quarter (Q3), while tourist arrivals approached pre-pandemic levels in both July and August, before moderating in September. Turning to the fourth quarter (Q4), conditions seem to have deteriorated somewhat. Tourist arrivals eased again in October, while merchandise export growth averaged lower than in the previous quarter – albeit remaining firmly in double-digit figures.
On 26 November, the Parliament passed the 2022 budget, which sees the deficit expanding to 5.4% in 2022 from a projected 4.6% in 2021. It will aim to support the economic recovery, basic reforms and strengthen the rule of law.[1] As the favorable base effect subsides, the GDP growth should moderate in 2022 amid a broad-based slowdown in activity. Possible delays in EU membership talks and risks stemming from the health crisis weigh on the outlook.
According to the World Bank, Albania’s economy, like other countries in the region, is recovering faster than expected after the recession created by the COVID-19 pandemic. Following the contraction of the economy by 4% in 2020, GDP growth is projected to reach 7.2 % in 2021. The strong recovery is supported by consumption, tourism, and construction. Going forward, growth is expected to moderate at 3.8% in 2022 and 3.7% in 2023. This recovery should be contributing to the fiscal revenue collection. Macroeconomic policies have supported the recovery, but higher spending has led to a further rise in the debt-to-GDP ratio. Economic uncertainty remains high, as the COVID-19 pandemic continues worldwide. [2]
Available data by quarter from INSTAT
According to the Albanian Institute for Statistics (INSTAT),[3] the country’s GDP in the first quarter of 2021 in volume, terms increased by 5.53% compared with the first quarter of 2020. The branches that gave a positive contribution were Industry, Electricity and Water by +2.56%, Construction by +1.09, Public administration, Education and Health by +0.97 %, Real estate activity by +0.58 %, etc. The negative contribution arrived in the branches of economy such as Professional services and Administrative services by -0.20 %, Trade, Transport, Accommodation and Food Services by -0.14 %.
Contribution of the main branches of the economy to real growth rate of GDP (Q1_2021 / Q1_2020)
While in the second quarter, the GDP in volume terms increased by 17.89% compared with the second quarter of 2020. The branches that gave a positive contribution were Industry, Electricity and Water by +4.13 %; Trade, Transport, Accommodation and Food Services by +4.09 %; Construction by 3.42+ %, Public administration, Education and Health by +1.56 Net taxes on products contributed positively by +1.73 %. The negative contribution arrived from areas such as Agriculture, Forestry and Fishing by -0.19 %.
Contribution of the main branches of the economy to real growth rate of GDP (Q2_2021 / Q2_2020)
CPI
Consumer Price Index (CPI) in October 2021 arrived 102.7 against December 2020 as reference period. The annual rate of consumer price index in October 2021 is 2.4 %, a year before was 2 %.
Annual rate of consumer price index
Contribution of main groups in yearly changes of CPI: Annual growth rate in October was influenced mostly from prices of group such as Food and non-alcoholic beverage by +1.33%; Transport +0.36% and Housing, water, electricity and other fuel increased by 0.24%.
Contribute of main groups in annual rate increase of CPI
Trade
In ten months of 2021, the value of exports increased by 35.2 %, compared with previous year and the value of imports increased by 29.5 % compared with previous year. Trade deficit increased by 24.8 %, compared with the same period of 2020.
Annual change in Foreign Trade (percentage)
In the first ten months of 2021, countries with which Albania had the highest increase of imports, compared to the same period of 2020 are Italy (28.4 %), Turkey (45.4 %) and China (23.7 %). While, countries with a decrease of imports are Switzerland (7.6 %) and Ukraine (19.2 %) and Russia (2.4 %). Trade with the EU countries, in the first ten months of 2021 is 60.5 % of total trade.
Poverty
From the International Monetary Fund (IMF) Albania is viewed with the highest poverty rate in the region, one third of the population lives on less than 5.5$ per day. In the peak of the COVID-19 pandemic (2020), 1/3 of the population, or 32.6%, was considered poor, from 31.8% the previous year. In contrast, social protection for the population is among the lowest in the region. For 2021, the poverty level is expected to decrease slightly to 30.8%. The figures are made known in the latest report of the International Monetary Fund (IMF) on the progress of the country. [4]
Another report from the World Bank is grimmer; it states that Albania was hit hard by the COVID-19 pandemic. As tourism and services contracted sharply, GDP and employment slumped. The governmental stimulus alleviated the shocks, but at the cost of fiscal space erosion in a context of high economic uncertainty for the years ahead. They estimate that during the pandemic times more 120,000 Albanians fell under the poverty line.[5]
Euro in decline and the elections
The Bank of Albania (BoA) has introduced, since before the pandemic the so-called “de-euroziaton package”. They claim that the presence of Euros in the financial system and in the larger context in the economy, has an important impact on the effectiveness of economic policies. In terms of financial stability, “euroization” increases the exposure of the financial system and economic operators to unfavorable developments in the exchange rate and to stress situations of foreign currency liquidity.[6]
However, this policy is not working; estimates of percentage of usage of euro in the economy are on 50%. This figure was increased in the pre and post elections period (April 25th). The drastic decline of the European currency in those months, led many to believe that illegal money was inserted in the cash flows of the country. Form this phenomenon the ones that were hit the most were Albanian exporters, because their row materials and other expenses are in local currency, while their sales are in the Eurozone. On the other hand, importers of goods and services have more benefits with this trend, and in theory, there should have been a price decrease of many imported goods, but this never happened.
Remittances
The money that emigrants send to their families in Albania (remittances) has marked a significant increase this year. According to BoA statistics, for the first 9 months of 2021, inflows amounted to 541 million Euros, marking the highest level since 2009. Compared to January-September of one year prior, when the country was suffering the consequences of the pandemic and the closure of Europe, remittances increased by 15%.
Italy and Greece continue to be the main remittances channels in the country, due to the high number of Albanian living and working there. However, in recent years, inflows from new countries of emigration are also increasing, mainly the United Kingdom and especially Germany. However, this figure is much higher because there are calculated only the bank transfers, while most of the Albanian living abroad usually choose other channels of sending money home, namely hand-in-hand cash. [7]
Conclusion
Most economic estimations see Albania’s GDP rise to from +5 to 7% in 2021. Nevertheless, all the increase trends are the in the wrong categories, and all the decrease trends are again in the wrong categories. The GDP increase is not reflected into the daily life of Albanians.
Decrease of the value of euro means there is much space to speculate in terms of money laundering and corruption. Decrease of exports means less local jobs. Increase of inflation, means a more expensive existence. Increase of remittances, means there are more people in need from money from abroad. Increase of poverty, there the tragedy speaks for itself, beyond numbers.
[1] Focus Economics (2021, November 30). Country profile for Albania/ Albanian economic growth. Available at https://www.focus-economics.com/countries/albania
[2] World Bank Albania (2021, October 21). As Economy Rebounds, Albania Has Opportunity to Build a More Sustainable Growth Model. Available at https://www.worldbank.org/en/news/press-release/2021/10/21/as-economy-rebounds-albania-has-opportunity-to-build-a-more-sustainable-growth-modelb
[3] All data in this section are retrieved from http://www.instat.gov.al/al/temat/ekonomi-dhe-financ%C3%AB/llogarit%C3%AB-komb%C3%ABtare-gdp/#tab3
[4] Monitor (2021. December 7). FMN: Shqipëria me varfërinë më të madhe në rajon, një e treta e popullsisë jeton me më pak se 5.5 dollarë në ditë. Available at https://www.monitor.al/fmn-shqiperia-me-varferine-me-te-madhe-ne-rajon-nje-e-treta-e-popullsise-jeton-me-me-pak-se-5-5-dollare-ne-dite/
[5] World Bank, Western Balkans Regular Economic Report: Spring 2021. Available at https://www.worldbank.org/en/region/eca/publication/western-balkans-regular-economic-report#:~:text=In%202021%2C% 20the%20Western%20Balkans,3.1%20percent%20contraction%20in%202020.
[6] Bank of Albania official website (2018). “De-euroization package”. Available at https://www.bankofalbania.org/Financial _Stability/De-euroization_Package/
[7] ABC News (2021, December 10). Emigrantët dërgojnë rekord parash për familjet e tyre. Available at https://abcnews.al/emigrantet-dergojne-rekord-parash-per-familjet-e-tyre/