News Analysis: Albania confident of economic growth in H2

Governor of the Bank of Albania Genti Sejko on Wednesday expressed confidence that the Albanian economy will go back to growth in the second half of 2015 and continue the trend in the following two years.

He said that inflation below the target and the cyclical weakness of the economy have determined the pursuit of an accommodative monetary policy in recent years.

The first five months of the year saw an upward trend in inflation, yet this trend is fragile and inflation remains below the target.

"The rate of inflation descended to 1.8 percent in May, being in line with our assessments for a temporary effect of supply-side shocks during the first quarter of the year. The fall in food prices in May and in global oil prices led to the fall in inflation in this month," he said.

Sejko said that the economy is expected to grow gradually, and economic activity is expected to remain below the potential during 2015.

Private domestic demand is assessed as weak, although it has made a small positive contribution to economic growth. In particular, private consumption was affected by the payment of electricity bills in arrears.

On the other hand, the fiscal policy and indicators continued the consolidation path. Budget deficit has been on the downward side until May, whereas public expenditures were slightly up in annual terms.

The monetary stimulus has been transmitted in financial markets. The Bank of Albania expects lending to grow at a slow rate in 2015, and faster in the years ahead.

Sound balance sheets of the banking system, the program for the treatment and reduction of non-performing loans, and the expected recovery of credit demand are expected to trigger a faster growth of lending.

"Economic growth is expected to improve during the second half of 2015 and in the next two years," said Sejko, adding that stimulating monetary conditions will boost the growth of consumption and investments, hence creating premises for the acceleration of economic growth and the return of the economy to equilibrium.

A better capacity utilization will drive the rise in wages and employment, and the firm return of inflation to target, said Sejko.

The Supervisory Council of the Bank of Albania also analyzed the most recent developments in Greece, potential risks and spillover channels.

According to Albanian Daily News, the Supervisory Council of the Bank of Albania assured the public on Wednesday that it is carefully assessing any scenario of the Greek crisis.

"In any event, we stand ready to undertake all the necessary measures to comply with our objective of price stability. In collaboration with our strategic partners, particularly the International Monetary Fund and the European Central Bank," said Sejko.

The Supervisory Council said that the financial system is completely sound, with ample liquidity and a capitalization rate.

For a number of years, the Bank of Albania has implemented a policy of prudence towards the banks with Greek capital holding, imposing on them more conservative conditions regarding capitalization and the liquidity levels.

The latest data show that the Albanian banking system is exposed to neither the Greek public sector nor to other private Greek groups. Banks with Greek capital constitutes 15 percent of the Albanian banking system, as against 25 percent at the end of 2008. Endi