Increased consumption and the return of services as pillars of economic growth in the first quarter of 2025

Albanian economy in the first quarter of 2025 is characterized by a recovery of consumption and services as growth engines, but with serious challenges in the manufacturing sector and in the foreign trade balance.

In the following, we will present a detailed analysis highlighting the main trends, market specifics and their implications for the Albanian economy. This will enable us to have a clearer understanding of the current developments, challenges and prospects that arise in the field of export-import, as well as their impact on the structure and stability of the economy in general.

Increased consumption and the return of services as a pillar of economic growth

The data from the first quarter of 2025 show that the Albanian economy is primarily driven by consumption and the services sector. Sectors such as bars-restaurants, hotels, and transport have recorded significant increases in both sales and wages, often growing faster than employment itself. This trend indicates not only an improvement in domestic demand but also a higher level of formalization in labor relations, a sign that businesses are increasingly under pressure to offer formal contracts and hire more qualified staff.

Key factors supporting this growth include:

• Rising wages (detailed further in the table below)
• Growth of domestic tourism, positively impacting services
• Low inflation preserving consumer purchasing power

This positive dynamic places services as the leading growth engine of the economy, although it also presents challenges for the structural balance of the broader economic model.

Manufacturing sector: signs of slowdown in industry and energy

In contrast to services, the productive sector, particularly manufacturing and energy showed signs of deceleration during Q1 2025. Based on indicators such as output, sales, and employment, a weakening of activity is observed, despite a slight increase in wages, perhaps as an effort to retain skilled labor.

An exception within the productive sectors is construction, which experienced solid growth: +7.5% in sales and +16.8% in average wages, making it an important pillar of aggregate demand.

However, the construction sector faces visible challenges related to informality and cyclical fluctuations, making it an unstable growth driver in the long term.

This situation signals a weakening of the economy’s productive base, placing disproportionate pressure on services and consumption growth, while increasing dependence on imports and exposing the economy to international volatility.

Retail trade: real and sustained growth, signaling stronger consumption

The retail trade volume index reached 107.2 in Q1 2025, translating to a real annual growth of 7.0% and a quarterly increase of 1.4%, after seasonal adjustments.

More specifically:

• Retail trade excluding hydrocarbons grew by 4.9%
• Retail trade of hydrocarbons in specialized stores increased by 13.2% year-on-year, although it posted a slight quarterly decline (-0.3%), likely due to seasonal effects or shifts in international prices

To better understand how different product groups contributed to this retail growth in Q1 2025, it’s useful to look at their contribution in percentage points:

• Non-food items contributed +2.4 percentage points, reflecting strong growth in the consumption of goods such as clothing, electronics, or other consumer products.
• Food, beverages, and tobacco contributed a more modest but important +1.4 percentage points, indicating steady and continuous consumption in essential goods.
• Retail trade of hydrocarbons, including fuel and oil products, recorded the highest contribution at +3.2 percentage points, underlining this sector’s strong influence on overall retail performance. However, it’s crucial to assess whether this growth stems from real domestic demand or external factors such as international price changes.

The sharp growth in hydrocarbons indicates a strong impact from this sector, but careful assessment is needed to determine if it’s driven by internal consumption or international price shifts. Meanwhile, the increase in non-food goods consumption reflects improvements in discretionary spending and the general well-being of the population.

Foreign trade January–May 2025: specifics and key insights

In the first five months of 2025, foreign trade shows limited improvements alongside concerns regarding the sustainability of the development model.

Consumption and services are growing, but value-added exports and productive investments are not showing notable progress.

• Export growth is largely tied to high mineral prices, products with low value-added and high sensitivity to international fluctuations
• Imports of basic consumer goods continue to rise, while imports of production inputs (machinery, equipment) are declining, signaling a slowdown in productive investments

The main specifics are presented in the following explanations.

Specification value and changes explanation (YoY).
Total exports 168 billion ALL, +2.1%. The increase comes from minerals and fuels (+42.4%), not from technological products
– Exports to the EU -4.8% decline. Loss of traditional markets, lack of diversification
Total imports 354.9 billion ALL, -2.4%. Decrease in machinery and equipment (-10.1%), increase in food and beverages
– Trade deficit 186.9 billion ALL (over 55% of imports). High deficit, pressure on reserves and currency stability

From the entire panorama it is understood that:
– The export growth we are seeing is mainly based on low-priced and less sophisticated goods, i.e., not high value-added or innovative products. This means that the exporting economy is not advancing much towards producing more complex and competitive products in international markets.
– The decrease in machinery imports should not be interpreted as an improvement in domestic production; on the contrary, it reflects a slowdown in investments in new equipment and technology for the manufacturing sector. This situation may imply that companies are not expanding or modernizing, which could have long-term negative effects on production capacity.
– The high trade deficit, meaning that the value of imports is much higher than exports, is a sign of a pronounced economic imbalance. This creates the need for the country to seek external financing, such as loans or foreign investments, to cover this gap, making the economy more vulnerable to external factors and less stable in the long term.

The overall economy, macro signals and comparisons
The table below summarizes the main indicators of the Albanian economy in the first quarter of 2025:

Key Indicator	Q1 2025 Value	Annual Change	Comment
Real GDP (estimated)	+3.3–3.5%	From +2.7% in Q1 2024	Moderate but accelerated growth
Retail sales index	107.2	+7.0%	Real growth, unaffected by inflation
Average gross wage	82,210 ALL	+13.6%	Very high pace, creates redistribution pressure
Employment in services	Increase ~3–6%	–	Positive dynamic in tourism, trade, real estate
Annual inflation	Around 2.5–2.7%	Decreasing	Low inflationary pressure, maintains purchasing power

This table summarizes the main economic indicators for Albania for the first quarter of 2025, offering a clear overview of the current economic situation and comparative developments with the same period last year.

First, real Gross Domestic Product (GDP) is estimated to have grown by about 3.3 to 3.5 percent, marking an acceleration compared to 2.7 percent in Q1 2024. This indicates that the economy is expanding at a better pace, although the growth remains moderate and not spectacular.

The retail sales index, deflated to eliminate the impact of inflation, stands at 107.2, reflecting a real annual growth of 7%. This growth shows that consumption is developing and is a signal of increased consumer confidence and purchasing power.

The average gross wage has increased to 82,210 ALL, with a very high rate of 13.6%, creating considerable pressure for income redistribution and a need for increased productivity to sustainably support these higher wages.

Employment in the service sector has increased in the range of 3 to 6 percent, particularly in tourism, trade, and real estate, indicating a positive dynamic and improvement in labor supply and demand in these key sectors.

Annual inflation is around 2.5 to 2.7 percent and is decreasing, indicating relatively low inflationary pressures, which helps preserve purchasing power and economic stability.

Together, these indicators highlight that the Albanian economy is in a recovery phase, where consumption and services are bearing the main weight of growth, while the productive sectors remain more passive, presenting a challenge for diversification and long-term stability of economic development.

Risk assessment and our comments
The current dynamics of the economy display several structural risks that require clear and focused policies:
– Wage growth without productivity improvement poses a risk of inflation and weakening business competitiveness.
– The dominance of the service sector makes the economy sensitive to cyclical crises and unexpected market changes.
– The growth in retail consumption is closely linked to import dependency, due to insufficient domestic production.
– The decline in industrial activity risks the loss of productive capacity and reduced employment opportunities.
– The presence of the informal sector causes loss of fiscal revenues and increases social insecurity.

The Albanian economy in the first quarter of 2025 is moving on two parallel tracks:
– Positively, the growth in consumption and expansion of the service sector, along with construction performance, are factors that keep the economy growing and strengthen household incomes.
– Negatively, the productive base is weakening, particularly in industry and energy, risking long-term stability and economic independence.

To ensure sustainable and balanced economic growth, policy should be oriented towards the development of productive and export sectors that create real added value. Increasing competitiveness through technology and innovation is essential, as is further formalization of the labor and business market to strengthen economic security and transparency.

Additionally, building local capacities is key to supporting growing demand without relying on imports, thus reducing dependency and helping develop a more sustainable and independent economy.