Albania Country Report - October, 2014

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Albania Country Report - October, 2014

EXECUTIVE SUMMARY
This report covers the main macroeconomic releases from October 7 to November 7 as well as the financial and political events that took place in Albania during this period.
Last month both the International Monetary Fund (IMF) and the European Commission published new forecasts saying Albania’s economy should see a gradual acceleration in growth between 2014 and 2016, following the slowdown over the last three years. Growth drivers include a pick-up in bank lending, government plans to clear public arrears clearance and planned large FDI projects. The IMF is a bit more optimistic expecting a GDP growth of 2.1% for 2014 and 3.3% for 2015. The EC sees Albania’s economy expanding by 1.8% in 2014 before gaining speed to 2.9% in 2015 and further to 3.5% in 2016. According to the latest data from the statistic office, the GDP edged up 0.4% on a quarterly basis in Q2 but swung into a 0.6% contraction on an annual basis from a 1.7% hike in Q1.
Winning EU candidate country status is boosting Albania’s long-term growth potential, US commercial information and analysis company Dun & Bradstreet (D&B) said in a new report. Ratings agency Moody’s also agrees that becoming EU candidate country is supporting Albania’s creditworthiness along with the government’s fiscal consolidation measures and the clearance of arrears towards the private sector under a three-year loan deal with the IMF. Moody’s rates Albania at B1.
In mid-October Standard & Poor’s affirmed Albania’s B/B long- and short-term sovereign credit ratings and revised the outlook to positive from stable on expectations that the government will reduce the budget deficit in the mid-term

Key points:
• Albania’s consumer prices increased by 1.5% y/y in September, easing from 2% the month before, mainly due to a weaker growth in food prices.
• The general budget deficit narrowed by 48.4% y/y to ALL30.5bn (EUR 219mn) in January to September and equalled to 2.2% of the projected full-year GDP, down from 4.4% in the same period a year earlier.
• The country’s foreign trade gap widened by 10.6% y/y to ALL204.7bn in January-September. The shortfall accounted for 14.7% of the projected full-year GDP, up from 13.7% a year earlier.
• Albania’s public debt expanded by 4.7% on the quarter to ALL 961.4bn at end-September and accounted for 63.9% of the full-year GDP projection, up from 60.9% a year earlier.


Table of Contents

Contents
EXECUTIVE SUMMARY 4
MACROECONOMIC OVERVIEW 5
EC sees Albania’s economy expanding 1.8% in 2014 5
IMF keeps Albania’s 2014 GDP growth estimate at 2.1% 5
S&P affirms Albania’s B/B ratings, raises outlook to positive 6
Moody’s says fiscal consolidation, EU candidate status support Albania’s creditworthiness 7
D&B says winning EU candidate status boosts Albania's long-term growth prospects 8
Albania's 2015 draft budget sets deficit at 4% of GDP 8
Central bank leaves key rate unchanged at 2.5% 8
Yields on two-year bonds rise further on weak demand at primary auction 9
Albania climbs in World Bank’s 2015 Doing Business ranking 11
Economic sentiment indicator improves in Q3 2014 12
Albania slips to 62nd position in economic freedom ranking 12
REAL SECTOR 13
1. GDP 13
Albania's economy contracts by 0.6% y/y in Q2 2014 13
2 Inflation 15
CPI inflation eases to 1.5% y/y in September 2014 15
FISCAL SECTOR 16
General budget deficit narrows 48.4% y/y in Jan-Sept 16
Albania's public debt rises 4.7% q/q in Q3 17
FINANCIAL SECTOR 17
Growth in bank assets eases to 3% y/y at end-September 18
Bank lending rises 1.6% y/y in September 18
Insurers’ gross premiums up 45.2% in Jan-Sept 19
EXTERNAL SECTOR 20
Balance of payments 20
Foreign trade deficit widens 10.6% y/y in Jan-Sept 20
PRIVATISATION AND INDUSTRY NEWS 21
Albanian PM pledges to clear power sector debts 21
Parliament panel endorses abolishment of tax incentives for biofuel producers 24
Czech energy group CEZ says agreement with Albania confirmed, to get EUR 100mn in compensation 24
Albanian anti-trust body clears sale of Stream Oil to TransAtlantic Petroleum 24
POLITICAL NEWS 25
Albanian PM Edi Rama delays planned visit to Serbia after UEFA match drone incident 26
EC says Albania needs to implement reforms in key areas to start accession talks 26

Table 1 GDP 13
Table 2 CPI Inflation 15
Table 3 General budget balance 17
Table 4 Insurance premiums 20
Table 5 Foreign trade 21

Figure 1 Yields on 2-year bonds 9
Figure 2 CPI inflation 15
Figure 3 Bank assets 18
Figure 4 Bank loans 18
Figure 5 Foreign trade 21

Number of pages: 27
Release Date: Fri, 07 Nov 2014