Albanian Economy in the Global Economic Background

Altin Tanku

May 18th 2012

Overview

• Current Developments – Taking stock of current global developments

• Economy• Financial system

• Future in a Global World– Own Model of growth– The role of Partners

Catching up at any speed

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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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15000

20000

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30000

35000

40000

Albania Bosnia and Herzegovina Bulgaria China Croatia

Hungary Kosovo Macedonia, FYR Montenegro Romania

Russian Federation Serbia Poland European Union

GDP per Capita

Source World Bank & UNCTAD

Inflation

Foreign price developments the most likely determinant of inflation

•Growth depends on consumption, investments and recently exports.•Investment depend on government exp. and credit to private sector.

GDP Growth

GDP sectors

Dynamic Economic Forecasts

Policy & Market Interest Rates

Policy is constrained by the presence of output gap and low GDP and low inflation (no strong demand yet in horizon)

Fiscal Developments

Fiscal stance is stretched as much as it can, there is less or no room for further fiscal expansion.

Foreign Trade Developments

Export growth during 2010-2011 represent mainly exports of energy.

Current Account

The other “Export”EU Remittances Oflow

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80

2005 2006 2007 2008 2009

Germany Greece Italy Remitances in perspective

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60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Remittances % of Exp. Remittances % of GDP

Source EUROSTAT & UNCTAD

Foreign Direct Investments

Exports

Imports

Free floating exchange rates

Banking System

Dec-08 Dec-09 Dec-10 Dec-11No. of Banks 16 16 16 16

No. of banks branches 511 524 529 528Assets/GDP (%) 76.7 77.5 81.0 84.8Credit/GDP (%) 36.5 39.3 40.1 42.8

Share of foreign capital (%) 91.8 92.3 92.5 N/ACapital Adequacy Ratio (%) 17.2 16.2 15.4 15.6

ROA (%) 0.91 0.42 0.72 0.07ROE (%) 11.35 4.58 7.58 0.76

Net Interest Margin (%) 4.13 4.04 4.32 4.20Liquid Assets/Total assets (%) 42.8 26.6* 25.9* 26.5*

* Note: The methodology of calculating Liquid Assets has changed in December 2009

Financial Intermediation

-5%

5%

15%

25%

35%

45%

55%

Jan

-08

Feb

-08

Mar

-08

Apr-

08

May

-08

Ju

n-0

8J

ul-

08

Au

g-0

8S

ep-0

8O

ct-0

8N

ov-0

8D

ec-0

8J

an-0

9F

eb-0

9M

ar-0

9A

pr-

09

May

-09

Ju

n-0

9J

ul-

09

Au

g-0

9S

ep-0

9O

ct-0

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ov-0

9D

ec-0

9J

an-1

0F

eb-1

0M

ar-1

0A

pr-

10

May

-10

Ju

n-1

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10

Au

g-1

0S

ep-1

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ct-1

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ov-1

0D

ec-1

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an-1

1F

eb-1

1M

ar-1

1A

pr-

11

May

-11

Ju

n-1

1J

ul-

11

Au

g-1

1S

ep-1

1O

ct-1

1N

ov-1

1D

ec-1

1

Deposit growth (y-o-y)

Sources of Financial Intermediation

Non Performing Loans

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2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

Dec

-05

Mar

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06

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-11

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-11

Albania-EU-Global Economy• Albania model of growth

– Internal Market Factors • Factor redistribution

» early transition period • Absorption lead model

» period leading to the crisis

– Export lead strategies• Cheap labor?• Lots of FDI exclusively from EU?• “Close” partners in geography and other dimensions?• New relatively large markets?• Moving up the value chain?

Global trends & Theory of International Trade

“Over the past three decades hundred of millions of workers have entered the global economy… and over time they have generally gained in terms of human capital and in terms of value added and income. … but these new workers have brought more employment competition and significant shifts in relative wages and prices, which is having profound distributional effects.”

Spence, M., 2011

Albania-EU-Global Economy

• One global market, one global factor, one global price.

• Deal with it …but how …

• Challenge: remain part of the global market.– Reduce dependence on single traditional partners– Hope that the anchor is still there– Define relevance of the SEE term

• Must know for the future • Understand the nature and value of wealth• It is all part of an endogenous system• There is potential for regime change

Global Economy & Albania– The wealthiest “nation” is the “leading anchor”

– What will define wealth in the next 50 years– Potential for growth

» minerals, agriculture, trade related services and infrastructure

– It is all part of an endogenous system– EU developments can not go unnoticed in the global economy.– Global developments can not be treated as exogenous and unrelated

with developments of Albania and/or its main partner.

– There is potential for regime change– Literature on the negative effects of globalization is growing in size and

topics. – Globalization or technological change or both have constrained driving

forces of the system opening gaps that might tiger error correcting mechanisms.

» Structural breaks vs. temporary drifting » Where is the error correcting mechanism located in the system.