Country Report Albania March 2009

Outlook for 2009-10

The next parliamentary election will be held on June 28th. The election is expected to be a tight race between the Democratic Party of Albania (DPA), led by Sali Berisha, the prime minister, and the opposition Socialist Party of Albania (SPA), headed by Edi Rama, the mayor of the capital, Tirana. Albania is set to join NATO at the alliance's next summit in April, and the government is preparing to submit its application for EU candidate status in the coming months. The Economist Intelligence Unit has revised down its forecast for real GDP growth to an average of 2.5% in 2009-10, owing to the expected deep recession in the euro zone. We forecast average inflation to drop to 2% in 2009-10. The current-account deficit will narrow, but we expect it to remain large over the forecast period, at an average of about 12% of GDP.

The political scene

The Constitutional Court has suspended the implementation of a controversial lustration law, which is intended to exclude from public office those who worked for the communist-era secret police or took part in staging political trials. The foreign minister, Lulzim Basha, and a former defence minister, Fatmir Mediu, have been charged with abuse of office in separate cases. Early opinion polls have produced contradictory findings about the likely level of electoral support for the DPA and the SPA.

Economic policy

The budget deficit for 2008 was an estimated 5.4% of GDP, largely in line with a fresh revision carried out by the government in mid-December, but higher than the forecast 5.2% contained in the earlier revised budget. Albania's three-year arrangement with the IMF expired in January, without the conclusion of a successor agreement. The Bank of Albania (BoA, the central bank) reduced its key policy rate by 50 basis points, to 5.75%, as inflationary pressures eased.

The domestic economy

Despite signs of a slowdown in the final quarter of the year, strong domestic activity, buoyant exports and rapid credit expansion in January-September helped real GDP to grow by an estimated 6% in 2008. Although average inflation in 2008, at 3.4%, was the highest in six years, the consumer price index (CPI) continued to decline, dropping to 2.2% year on year in December.

Foreign trade and payments

Export growth slowed sharply, to 7.3% year on year, in the fourth quarter of 2008 as Italy and Albania's other euro zone markets entered a recession. In 2008 exports rose by 15.7% year on year and imports grew by 16.5%, resulting in a 17% expansion of the trade deficit, which amounted to Lk325.8bn (US$3.87bn).

This report covers the following industry codes:
SIC Code: 49;60
NAICS Code: 22;52