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EC: High prices and the effect of the strengthening of the lek on exports, Albania is expected to slow down in 2023 and 2024

2023-11-15 12:36:43Biznes SHKRUAR NGA REDAKSIA VOX

EC: High prices and the effect of the strengthening of the lek on exports,

The Albanian economy is expected to slow down in 2023 and 2024 compared to 2022, according to the latest report of the European Commission, influenced by the slowdown in private consumption as a result of high prices, the inhibition of employment and the negative effect it is having on the competitiveness of exports strengthening of the lek.

Private investments are also expected to decrease as a result of the tightening of financing conditions, as well as public ones, since more funds will be required for the salary increase policy. The sector that is expected to have the best performance is that of tourism, influenced by Albania's free offer and the improvement of infrastructure and tourist alternatives.

According to the European Commission's autumn report, after strong expansion in 2022, Albania's economic growth is expected to moderate to 3.5% in 2023 and 3.1% in 2024 as private consumption is forecast to slow due to high food prices and slower growth. poor employment. Meanwhile, the growth of investments will weaken in response to the tightening of financing conditions and the reduction of public investments.

Also, merchandise exports are expected to weaken, partly due to the loss of price competitiveness from the appreciation of the local currency. while services exports from tourism are expected to remain strong. The re-acceleration of private consumption and investment is expected to boost economic growth to 3.7% in 2025. The reduction of public debt is expected to continue, albeit at a slower pace than in previous years.

 

Economic growth is expected to slow in 2023 and 2024

Real GDP grew by 3.2% in annual terms in the second quarter of 2023, from 2.8% in the previous quarter, driven by strong private investment and consumption, while net exports contributed negatively to GDP growth. despite strong tourism.

Growth is expected to slow from 4.8%. in 2022 to 3.5% in 2023, reflecting base effects and the slowdown in private consumption as a result of still high food prices, although it continues to benefit from employment growth and real wage growth Investment is also expected to slow due to conditions tighter financing conditions for business loans while public investments are expected to be reduced to create space for salary increases in the public sector.

Despite the tourist season pushing service exports to a new peak, net exports are projected to negatively impact GDP, mainly due to a decline in goods exports, which are affected by strong currency appreciation and a decline in external demand for building materials.

Growth in merchandise imports is also expected to decline sharply, reflecting base effects, slowing domestic demand and last year's inventory build-up. However, the growth of imports of services is expected to remain strong. Business confidence improved steadily across all sectors from late 2022, but in mid-2023 confidence in the services and construction sectors began to decline.

These factors are projected to continue to weigh on domestic demand in 2024 and slow GDP growth further to 3.1%. Slowing employment growth is expected to weigh on private consumption, while investment growth is forecast to slow further to 3.3% in response to weakening external demand and rising input costs, despite support from FDI inflows. and some ongoing infrastructure projects.

Merchandise export growth is forecast to improve slightly as the effect of currency appreciation moderates, but is still expected to remain weak in 2024 given the outlook for Albania's main trading partners. However, exports of services are expected to remain largely unaffected by the slowdown in the economic performance of trading partners, as tourism in Albania remains relatively cheap and the expansion of the tourism offer and infrastructure is making it attractive. The negative contribution of net export growth is projected to decrease in 2024.


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