RECENT ECONOMIC DEVELOPMENTS
Albania was hit by a devastating earthquake on November 26, 2019. The earthquake, measuring 6.3 on the Richter scale, caused damage to physical assets and led to losses equivalent to an estimated 7.5 percent of GDP.
Tourism and housing were hit the hardest. Action by the Albanian Government and international partners has helped to mitigate the adverse human and economic impact of this natural disaster.
Growth decelerated to an estimated 2.2 percent in 2019 from 4.1 percent in 2018. Consumption contributed an estimated 2.8 percentage points to growth. Net exports added 0.7 percentage points, but investment has subtracted 1 percentage point since then.
Lower than expected revenues curtailed public investment, and two large energy projects financed by foreign direct investment are winding down.
Despite slower growth, labor market outcomes are gradually improving. Unemployment fell to a record low of 11.4 percent. Poverty is expected to have increased in the areas affected by the earthquake but to have fallen nationwide.
Contained spending and the clearance of arrears to the private sector helped lower public debt to 67.1 percent in 2019, though spending did not compensate for the under-performance of revenue.
Lower energy production and weak external demand triggered a widening of the current account to 7.6 percent of GDP in 2019. Despite the record high tourism inflows in 2019, lower incomes and low commodity and energy exports led to a widening of the current account in 2019.
Albania is expected to lose 1.4 percent of GDP in 2020, as the effects of steps taken to halt the spread of COVID-19 have severely hit the country’s manufacturing, trade, tourism, and other non-tradable services.
The economy is likely to suffer from both a demand shock, fueled by the virus’s spread across the EU, as well as a supply shock, as the labor supply remains restricted due to social distancing measures.
Public debt is expected to increase in 2020, as the deficit increases to 3.9 percent of GDP to counteract the loss in income due to the epidemic and support for post-earthquake reconstruction.
Monetary poverty is expected to fall slowly by roughly 1 percent per year unless a larger increase in labor earnings for the poor is put in place.
A sharper and more durable decline in oil prices would deepen the recession in 2020, further increasing public debt to GDP and forcing the Government to delay reconstruction spending.
Weaker global demand, reflected in lower commodity prices and a continuous decline in oil prices, would also hit the country’s extractive industry, with important fiscal and economic repercussions.
Implementation delays in the reconstruction program could fuel domestic uncertainty and lower consumption.
Last Updated: Apr 16, 2020