New Market Report Now Available: Albania Business Forecast Report Q2 2014

Albania's economic recovery will remain sluggish in 2014, hindered by anaemic consumer spending and the government's deteriorating fiscal position. We forecast Albania's economy to grow by 1.8% in 2014.

The current account deficit will continue shrinking in 2014, with exports set to benefit from recovering external demand and imports restricted by weak consumer and corporate spending.

Weak domestic demand will ensure that inflationary pressures remain subdued over the coming quarters. With low bank lending also stifling Albania's economic recovery, we expect the Bank of Albania (BoA) to continue its rate cutting cycle in 2014, lowering rates by 50 basis points to 2.50% by year-end.

A lthough it is looking increasingly likely that Albania will be granted EU candidate status in June 2014, full membership of the bloc remains a distant prospect. Corruption and crime will continue undermining Albania's regional profile over the next few years, alongside growing fears over the sustainability of the country's rising public debt load.

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Major Forecast Changes

We have revised our forecast for Albania's current account to shrink to an 8.6% of GDP deficit in 2014, from 8.2% previously, against the backdrop of lower-than-anticipated remittance inflows from neighbouring Greece and Italy.

Key Risks To Outlook

The unbalanced nature of the economic recovery means that Albania is overly reliant on recovering exports, and we would therefore be tempted to revise-down our real GDP forecast for 2014 if leading and high frequency indicators point towards a slower-than expected recovery in external demand in the first half of 2014.

A lbania's growing public debt load also represents a serious risk to the country's attractiveness as an investment proposition. Although we expect the government to remain relatively committed to fiscal consolidation, we caution that as of yet not enough has been done to instil confidence in the country's ability to prevent its debt load from growing even further. We believe a deteriorating sovereign credit risk profile could weigh on foreign direct investment inflows over the next few quarters, slowing down the country's recovery.

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