2013-09-17 09:03:25 - New Country Reports market report from Business Monitor International: "Albania Business Forecast Report Q4 2013"
We 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.
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.
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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.
Key Risk To Outlook
The high dependence on Italy and Greece for external demand in Albania has the potential to derail the country's economic recovery in our view. If growth and demand surprises significantly to the downside in either country, then we would look to downgrade our growth forecasts for Albania in 2013 and 2014, with external demand currently playing a central role in the country's fragile economic recovery.
Political instability will also remain a key risk for Albania's growth outlook, as the new Socialist government attempts to bring the country closer towards full EU integration. Although we see no reason to believe the new administration will not be committed to EU integration, a failure to bring the country's sizeable public debt load under control could cast doubt over the country's suitability for eventual accession, which could undermine investor risk appetite in the country going forward.
Partial Table of Contents:
Major Forecast Changes
Key Risk To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Socialist Victory Ends Berisha Dominance, But Problems Persist
The recent victory of the opposition Socialist party in the June parliamentary elections should increase the chances of Albania being granted EU candidate status in 2013. However, ongoing corruption and rising regional tensions will slow the country's political progress, while ensuring that the full EU membership remains a distant prospect.
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. Key risks through 2022 will largely revolve around EU accession progress, and we also highlight a possible deterioration in regional relations over the 'Kosovo Issue' as a particular flashpoint of instability.
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Green Shoots of Recovery, But Risks Remain
We forecast real GDP growth to come in at 2.1% in 2013 and 3.2% in 2014 in Albania, driven primarily by a modest recovery in private consumption and healthy export growth. Nevertheless, a more significant recovery will be restricted by the government's unfavourable fiscal position and weak fixed investment growth, which will ensure that real GDP growth remains well below potential for some time to come.
TABLE: ECONOMIC ACTIVITY
Balance Of Payments
Current Account Deficit To Narrow
Albania's current account deficit will narrow to 8.6% of GDP in 2 013 and 8.2% in 2014, from 9.9% in 2012, as goods exports continue their gradual recovery and weak domestic demand restri cts import growth. However, a more significant contraction in the current account shortfall will be prevented by weak external demand and Albania's modest economic recovery in 2014, which should prove supportive of imports.
TABLE: CURRENT ACCOUNT
Full Table of Contents is available at:
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