Albania Business Forecast Report Q1 2013

Core Views

Albania’s relatively low level of trade and financial integration withWestern Europe will not protect its economy from the marked deteriorationthat has occurred in eurozone macroeconomic and financialmarket conditions over the past few months. The eurozone appearsto have slumped into recession, with Italy, Albania’s largest exportmarket, a focus of the region’s current woes.

The formation of a new centre-right party which looks set to receivethe backing and leadership of President Bamir Topi adds new dynamismto Albania’s political landscape and improves the electoralchances of the opposition Socialist Party. However, the bigger issuefor Albania will be the conduct of upcoming elections, rather thantheir actual result. A controversial election in 2013 would scupperthe country’s chances of being granted EU candidate status and addto the damage already done to the country’s accession ambitions.

Key Risks To Outlook

Albania’s strong economic and financial links to Greece and Italyremain a key risk to our outlook, even beyond the extent to whichwe have factored this exposure into our forecasts. On top of beingthe source of economically important remittance inflows, Albania’scommercial banking sector is dominated by Greek subsidiaries. Anuncoordinated credit event in Greece would put those parent banksunder pressure, possibly leading to a sharp withdrawal of credit fromtheir peripheral operations.