Sunday, August 17, 2008

Albania GDP and Inflation

Albania is in the process of passing new milestones in its economic and political development. Over the last decade and underpinned by programs from the World Bank and the International Monetary Fund, per capita GDP in U.S. dollar terms has more than doubled while inflation has been brought down to OECD-economy levels. While some of this improvement reflects catch-up gains obtained during the transition from a particularly detrimental economic policy regime prior to the 1990s, a significant part of the progress has been due to the application of prudent macroeconomic and structural policies. One recognition of the extent of these economic and political achievements has been the signing of a Stabilization and Association Agreement with the EU in 2006.

Inflation, while episodically above the target range, is now among the lowest in the region. In spite of global food- and commodity price shocks, there have only been temporary deviations from the 3±1 percent inflation target range, and expectations going forward appear firmly anchored. A cumulative 125 basis points increase in the policy rate since July 2006, has maintained positive real interest rates, buttressed by timely regulatory tightening

Notwithstanding last years drought, growth remained around potential and has become more broadly based. Real GDP grew by 6 percent in 2007 and the same rate is projected by the IMF for the current year. A regional drought in 2007 affected Albania particularly badly due to its dependence on hydro-electric power generation and rain-fed farming. But the recovery has been rapid as the economy diversified with buoyant construction and trade and the opening of new markets and export activities—e.g., in textiles, footwear and mining.