Tables/ European Commission publishes forecasts for the Albanian economy

2025-05-20 16:39:00, Ekonomi CNA

The European Commission has published its spring forecasts for the economies of European countries, both EU members and non-members, including Albania.

The report starts with data that Albania’s economy is expected to grow by 3.6% in 2025 and 3.5% in 2026, driven by domestic demand. Supported by tourism, services exports are expected to continue to expand, while goods exports are expected to recover somewhat after two years of significant contraction. After a sharp decline in 2024, inflation is expected to gradually return to the 3% target next year. The fiscal deficit is expected to widen before falling below 2% of GDP in 2026. The public debt-to-GDP ratio is projected to decline only gradually, driven by nominal GDP growth.

Tables/ European Commission publishes forecasts for the Albanian economy

Economic activity will remain strong

Albania’s economic growth remained strong at 4% in 2024, driven by strong domestic demand, good tourism performance, and sustained construction activity. Household consumption growth was supported by rising real wages amid declining inflation and accelerating credit growth. Public consumption growth increased thanks to the second phase of the public wage reform. Job creation in the services sector supported employment growth. Services exports expanded, but goods exports declined sharply due to an unfavorable external environment and the appreciation of the lek.

Tables/ European Commission publishes forecasts for the Albanian economy

Data from real GDP

Similar to 2023, most economic sectors recorded positive production growth, but agriculture and industry contracted.

In 2025-2026, GDP growth is projected to moderate compared to previous years, but remain strong at 3.6% and 3.5% respectively. Public consumption growth is projected to slow as the impact of the public wage reform fades, while private consumption, supported by real wage growth and improvements in the labor market, is expected to remain strong over the forecast horizon. Investment growth is supported by favorable financing conditions and the implementation of the Reform Agenda under the EU Reform and Growth Programme.

On the external side, services exports are expected to continue to expand, but the growth in tourist arrivals is expected to moderate from the double-digit growth rates observed in previous years. After reaching a low in 2024, goods exports are projected to recover somewhat, as the goods sector undergoes structural changes and the effect of currency appreciation fades. The current account deficit is expected to widen slightly from its historical low recorded in 2023, but remains well below its long-term average, indicating structural improvements driven by the growth in tourism.

Tables/ European Commission publishes forecasts for the Albanian economy

This outlook is subject to downside risks, related to changes in exchange rates and interest rates and growing shortages of skilled labor exacerbated by emigration. As a small and open economy, Albania is exposed to external risks related to the economic impact of tariffs on its main trading partners in the EU, such as Italy. Furthermore, global uncertainty and geopolitical risks could affect foreign direct investment flows.

Albanian budget balance

The rapid decline in inflation in 2024 is expected to be followed by an increase

Inflation fell from 3.4% in January 2024, the highest level of the year, to 2.1% in December, leading to an average annual inflation rate of 2.2%, down from 4.8% a year earlier. This decline was driven mainly by lower food and oil prices, along with the stable appreciation of the lek.

Headline inflation excluding food and energy also fell in 2024. In response, the Bank of Albania implemented two policy interest rate cuts in 2024, reducing it from 3.25% to 2.75%.

Average annual inflation is projected to rise in 2025, supported by higher imported inflation, and reach the central bank's target of 3% in 2026./CNA