Albanian economy
(Photo by: WM)

Albania’s GDP rises by an annual 5.5% in Q1 2021

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Albania’s economy expanded 5.5% year-on-year in the first quarter of 2021, following a downwardly revised 2.4% rise in the previous period, the country’s office of statistics INSTAT said. Both government expenditure (5.2% vs 4.5%) and gross fixes capital formation (21.1% vs 10.5%) accelerated while household consumption slowed (1.5% vs 1.9%).

The sectors that mostly contributed to the country’s economic growth were industry, electricity and water, construction, public administration, education and health. Meantime, foreign demand contributed negatively to growth as exports went up 0.7% (vs -12% in Q4) while imports rose 7.6% (vs -10.6% in Q4). On a quarterly basis, the economy expanded by 2.3%.

In June, the European Bank for Reconstruction and Development (EBRD) affirmed Albania’s 2021 GDP growth forecast at 4.5%, while the World Bank maintained it at 4.4%. The Washington-based institution said the Balkan country will continue to be affected by international travel restrictions. Tourism has been a notable source of national income, particularly during the summer months. Medium-term growth should be accelerated by a faster implementation of structural reforms in preparation for EU membership, provided negotiations are no longer delayed, the World Bank also noted.

Albania Interest Rate
(Source: Banka e Shqipërisë)

Last week, the Bank of Albania maintained its policy rate stable at 0.5%, as it sees the current monetary policy stance as adequate for bolstering economic growth. The central bank also decided to hold the interest rate on the overnight deposit facility at 0.1%, and the rate on the overnight lending facility at 0.9%.

The Bank’s Governor Gent Sejko mentioned that the economy has been recovering in the first half of the year, with inflation trending up in April and May after dropping in the first quarter.

Sejko also announced that Albanian economy is expected to grow rapidly and steadily during the current year and the next two years, supported by an improvement in foreign environment, the reduction of uncertainty, a mix of monetary and fiscal policies, as well as an improvement of the balance sheets of the private sector.

At the same time, downside risks have been declining, although inflation is still below target, employment is lower than the potential level and the stability of economic growth still requires stimulating monetary policies, Sejko said in a statement. Economic growth will be accompanied by employment expansion and wage increases, creating premises for returning inflation to target during 2022.

Last year, Albania’s economy declined by 3.31%. In March 2020, the central bank cut its benchmark interest rate to a record-low 0.5% and its one-day lending rate to 0.9% to stave off the economic fallout from the coronavirus. The decision followed emergency rate cuts by central banks around the world.