The European Commission said on Monday it affirmed its previous forecast for Albania's 2017 economic growth at 3.5%
Growth is expected to be driven mainly by household spending and private investment, the Commission said in its Winter 2017 Economic Forecast.
The Commission evaluated positively Albania's accommodative monetary policy stance, the improving labor market and the strong FDI inflows.
“The fiscal deficit and the public debt ratio are projected to decline, but the government's commitment to fiscal consolidation may be tested by the end of the IMF program and the upcoming elections,” the EU's executive body said.
The European Commission slightly raised its projections for Albania's 2018 GDP growth, to 3.6% from 3.5% in its November forecast.
"Increased political uncertainty related to the parliamentary election in June 2017 might dampen consumption and investment," the Commission warned. Credit recovery might take longer than expected in the context of persistently high NPLs, it added.
For 2016, the Commission said it expects the country's gross domestic product (GDP) to have grown by 3.3%. Previously, it had projected an economic growth rate of 3.2%.
The Commission also said that the Albanian central bank's decision to keep its policy interest rate unchanged at the record low level of 1.25% since May last year will continue to support the increase in domestic demand.
Household spending is benefitting from favorable financial conditions, as well as from improvement in the labor market conditions. In the third quarter unemployment was 15.2%, record-low in more than three years. Meanwhile wages are rising.
Consumer price inflation was 2.2% in December and is expected to reach the 3% target of the central bank in the course of 2018.
The upward trend in investments, mainly related to ongoing energy projects, such as the Trans Adriatic Pipeline, is also projected to continue in the next two years.