Albania Watch: Stronger than expected economy points to more tightening ahead
In Q4 2022, the real GDP exceeded the most optimistic expectations and increased by 4.7% yoy versus our expectations for a 3.1% yoy jump. In addition, all the previous three quarters data were revised upwards (+0.7% in Q1 to 7%, +0.4% in Q2 to 3.1% and +0.9% in Q3 to 4.9%). The figures for 2020 and 2021 were also stronger than initially estimated with the recession 0.2% shallower than the initial figure in 2020 at -3.3% and in particular a stronger rebound in 2021 at +8.9% versus +8.5% previously. The preliminary figure for GDP growth rate for the year 2022 resulted at 4.8% and came as a surprise compared to our estimate of a growth rate of 3.9%.
Growth powers ahead in Q4, lifting full year figure for 2022
In an environment of bumpy economic conditions worldwide, the economic activity in Albania blew away the geopolitical crisis in Europe and closed the year in an optimistic note. In Q4 2022 the GDP growth rate past the most optimistic expectations and increased by 4.7% yoy versus our expectations of a 3.1% jump. In addition, all the previous 3 quarters data were revised upwards (+0.7% in Q1 to 7%, +0.4% in Q2 to 3.1% and +0.9% in Q3 to 4.9%). The figures for 2020 and 2021 were also stronger than initially estimated with the recession 0.2% shallower than the initial figure in 2020 at -3.3% and in particular a stronger rebound in 2021 at +8.9% versus 8.5% previously. The preliminary figure for GDP growth rate for the year 2022 resulted at 4.8% and came as a surprise compared to our estimate of a growth rate of 3.9%.
Construction accounted for more than third of GDP growth rate in Q4 2022
Construction once again made the highest positive contribution to the GDP growth rate with +1.9%, followed by Trade (+1%), Health (+0.9%), IT and Real Estate (both with contributions of +0.5%). An eye-catching contribution pertains to Entertainment, with a negative contribution of 0.4%.
Construction & services were the engine of growth in Q4 2022
In terms of growth rates yoy, three categories registered double digits, namely Construction (the fastest-expanding activity during Q4 by 14.4%), followed by IT (13.8%) and Financial Activities (13%). Real estate, Health and Industry also expanded by 9.4%, 6.8% and 6.2% respectively. On the other hand, Entertainment shrank by -14.8%.
Government fiscal restraint continued to act as a drag on growth in Q4
On the expenditure side, GFCF continued to expand at a rate of 9.8% (up from the previous quarter’s growth rate of 7%), followed by Private Consumption posting a growth rate of 4.5%. However, Imports posted a growth rate (3.2%), significantly down from the previous quarter’s double-digit growth of 16%. Exports of products and services again logged a sluggish increase of 0.6%. Public Consumption was the only group to shrink (-3.0%) in Q4.
Core inflation keeps up pressure for further tightening by BoA
Inflation decelerated during the last four months, mainly due to the reduction in oil prices and in some food items in the international markets. However, the inflation remains high, at 7.1% respectively and core inflation even more elevated, at 8.7% in February. Taking into consideration these underlying conditions, Bank of Albania (BoA) resumed the monetary policy normalization during March, by raising the base rate by further 25bps, to 3%. Expectations for economic growth have increased and Bank of Albania may still need to engineer further tightening without risking a hard landing. According to central bank’s statement, the Albanian economy has been resilient towards the price shocks that came from the foreign environment. BoA’s expectations for further economic growth and higher than expected inflation figures, seem to have allowed the supervisory board to resume interest rate hikes after the halt in December and January. We believe that further key rate increases are necessary to bring domestic inflationary pressures under control.
Growth expected to slowdown slightly in 2023 compared to 2022
We estimate the GDP growth to slowdown in 2023 and recover thereafter. Our full year forecast for GDP growth is confirmed at 3% in 2023, on the back of tighter financial conditions, a slowdown in the euro, and further fiscal consolidation.
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Fjorent RRUSHI
Albania Fjorent is the head of ALM & Research for Raiffeisen Bank Albania. After a MSc in International Business from the University of Trieste and an MBA from MIB School of Management in Italy he started as an Investor Relations financial analyst at the aerospace & defense company Leonardo in Rome. After that he moved to the Italian Stock Exchange in Milan promoting blue chip companies through roadshows with institutional investors and after the merger with London Stock Exchange was in charge of primary markets of potential to be listed companies in Eastern Europe. In 2011 moved back to his native country to join Raiffeisen Bank in ALM & Research team in charge of fund transfer pricing, liquidity management and IRRBB. After a period at Intesa Sanpaolo Bank Albania as Head of pricing starting from 2021 he is heading the ALM & Research of Raiffeisen Bank Albania. Apart from macroeconomic analysis of particular interest for him is the disruptive technological transformation impacting the banking system. Fjorent’s hobby is football and he enjoys theatre and has been an amateur player as a teenager.
Aristea VLLAHU
Albania Aristea is part of the ALM & Research team at Raiffeisen Bank Albania. She is currently responsible for Funds Transfer Pricing and Macroeconomic Research in Raiffeisen Bank Albania. Her previous experience in ALM at Raiffeisen included interest rate risk management, interest sensitivity of income and stress testing. She also worked as Investment Analyst at Credins Invest, an asset management company in Albania. She holds a BA in Economics and MSc in Finance & Accounting from University of New York in Tirana and currently is a Level III Candidate for the CFA exam.
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