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Albania Country Risk Report Q2 2015

Albania Country Risk Report Q2 2015

Core Views

Albania's economy will remain on a low growth trajectory over thecoming years, unless more structural reforms can be implementedto tackle longstanding issues of competitiveness and corruption.

Household spending will be the main driver of real GDP growthin 2015. This is a concern, given that improvements to consumerspending patterns are more driven by external price developmentsthan fundamental improvements to household finances.

The government's fiscal position will remain perilous, with the publicdebt load expected to remain above 70% of GDP.

Tepid external demand from key eurozone trading partners, inefficienciesin key export industries and collapsing global oil pricessuggests Albanian exports will struggle in 2015.

Albania's central bank will remain dovish in 2015, due to declininginflation expectations, weak bank lending and relatively subdueddomestic demand.

Shaky debt dynamics, political infighting and elevated tensions withneighbouring Serbia will persuade the EU against beginning formalEU accession talks with Albania this year.

Major Forecast Changes

Declining inflation expectations have prompted us to downgrade ourpolicy rate forecasts to 1.75% at end-2015, from 2.00% previously.


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
More Progress Needed For EU Accession Talks To Begin
Albania will make steady progress implementing reforms aimed at bringing the country closer to the European Union in 2015. But shaky
debt dynamics, political infighting and elevated tensions with neighbouring Serbia will dissuade the EU from beginning formal accession
talks with Albania this year.
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 caution that forward momentum
will be sluggish. 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 go vernance.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Limited Room For Optimism Without Reform
Albania's economic recovery will remain sluggish over the coming years, preventing the country from converging with regional peers. In
the absence of more structural reforms, improving consumer spending will be insufficient to compensate for tepid external demand and
government budget cuts.
Table: Economic Activity
Balance Of Payments
Wider CA Deficits No Cause For Alarm
Tepid external demand from important eurozone trading partners, inefficiencies in key export industries and collapsing global oil prices
mean that Albanian exports will struggle in 2015. A stable funding structure means Albania's widening current account deficit is no
cause for concern.
Table: Balance Of Payments
Monetary Policy
Few Options But To Remain Dovish
Albania's central bank will remain dovish in 2015, due to declining inflation expectations, weak bank lending and subdued domestic
demand. Further cuts to the policy rate will be insufficient to drive a recovery in private consumption.
Table: Monetary Policy
Chapter 3: 10-Year Forecast
The Albanian Economy To 2024
Regional Outlook Weighs On Trend Growth
Though we project real GDP to expand by 3.4% between 2014 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.
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 Assumptions
Global Outlook
Weaker EMs To Weigh On Growth
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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