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Albania Country Risk Report Q1 2016

Albania Country Risk Report Q1 2016

Core Views

Albania will remain attached to a relatively low growth trajectory over the coming years, amidst weak private consumption and government fiscal consolidation efforts.

More efforts need to be made to implement structural reforms aimed at tackling corruption and improving labour market flexibility, if Albania is to have any hope of converging with historically more developed regional peers.

Albania's large and entrenched trade balance shortfall will ensure that the country's current account remains firmly in deficit over the coming years.

Uncertainty in neighbouring Greece throughout the country's 2015 debt crisis will increase the scope for regional instability. It will also weigh on demand for Albanian exports to Greece and remittances inflows from Albanian workers based in Greece.


Executive Summary
Core Views
Key Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Tensions Over Greater Albania To Intensify
Relations between Albania and neighbouring Serbia and Macedonia will deteriorate further over the coming quarters, removing any
chance of Albania gaining EU membership any time soon. Nationalist sentiment will also remain a prominent feature of Albanian politics,
as politicians attempt to divert attention away from corruption and slow economic growth.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Stumbling Towards The EU
We expect Albania to continue progressing towards EU membership over the next decade, though we caution that forward momentum
will be sluggish. A lack of institutional development and endemic corruption remain key challenges to stability over the long term, whose
presence will diminish efforts to address systemic problems regarding weak governance. Key risks through 2025 will largely revolve
around EU accession progress, and we also highlight a possible deterioration in regional relations over 'Greater Albania' as a particular
flashpoint of instability.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Private Consumption Drives Sluggish Growth
Albanian real GDP growth will remain sluggish in the years ahead, ensuring that it remains one of the poorest countries in the region.
Improving consumer spending will be insufficient to drive sustainable growth and to compensate for structural inefficiencies in the
economy.
GDP By Expenditure Outlook
TABLE: ECONOMIC ACTIVITY
External Trade And Investment Outlook
Wide Current Account Deficit To Pose Moderate Risk
Albania's current account deficit will remain large in the coming years, due to a persistently large trade deficit. Healthy FDI inflows will
enable Albania to fund the deficit, although further FX erosion would imply the country is struggling to tackle the current account deficit.
TABLE: BALANCE OF PAYMENTS
Outlook On External Position
TABLE: TOP 5 GOODS IMPORTS IN 2014
TABLE: TOP 5 EXPORT DESTINATIONS IN 2014
Monetary Policy
Limited Effect Of Central Bank's Dovish Bias
The National Bank of Albania's inflation target of 3% will be met from 2016. However, the bank's dovish monetary policy bias will be
insufficient alone to compensate for structural inefficiencies and weak private consumption in the economy, which are restricting real
GDP growth.
TABLE: MONETARY POLICY
Monetary Policy Framework
Chapter 3: 10-Year Forecast
The Albanian Economy To 2024
Regional Outlook Weighs On Trend Growth
Though we project real GDP to expand by 3.6% between 2015 and 2024, we caution that Albania is expected to remain one of the least
developed states in south east Europe. While small-scale export-oriented manufacturing will begin to take on a more prominent role
over the next few years, remittance inflows from expatriate migrant workers will remain a key source of foreign capital, underscoring
the relatively nascent stage of economic development in the Western Balkan state. Despite a low base, we see a relatively uninspiring
macroeconomic trajectory for Albania, as subdued economic growth in key economic partners Greece and Italy, as well as ongoing
political instability, make a return to pre-financial crisis growth rates unlikely.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: SOUTH EAST EUROPE - LABOUR MARKET RISK
TABLE: SOUTH EAST EUROPE - LOGISTICS RISK
TABLE: SOUTH EAST EUROPE - CRIME AND SECURITY RISK
TABLE: SOUTH EAST EUROPE - TRADE AND INVESTMENT RISK
TABLE: MAIN IMPORT PRODUCTS, 2012
Chapter 5: BMI Global Macro Outlook
Global Outlook
Exit The Dragon
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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