Economic growth in 2023 challenged by informality and black money

Description

The Albanian economy has exceeded expectations in 2022, growing by 4.8 percent, because of strong consumer demand, tourism inflows and construction activity.

First let’s discuss consumer demand and population and government consumption as a function of economic growth.

Of the above components in the GDP of 2022, the final consumption of the population has high and almost constant growth for the first three quarters of 2022 and with a decrease in the fourth quarter. In a downward trend, this component is also presented in the first quarter of 2023, influenced in this quarter by the reduction of some product prices, but also by the reduction of electricity and fuel consumption.

There is a positive and significant long-run relationship between inflation and household consumption expenditure. The implication of this finding is that inflation increases household consumption expenditures.

The data also show that there is a significant positive relationship between the growth rate of gross domestic product and the growth rate of household consumption expenditures.

If we compare the final consumption of the population with the rate of inflation in BP6 countries in 2022, it seems to have had less impact than in Albania, since the biggest impact on inflation has come from energy and food, which have increased consumption costs family and have also been influenced by the consumption of tourists and, in the case of Kosovo, of emigrants who return and visit relatives.

The final consumption of the Albanian government has a higher efficiency of use in 2021, compared to 2022, but also to 2018 and the first quarter of 2023. This higher level in 2021 does not show any other trend, except for expenditure payments during the year 2021, which mostly carry those that belonged to the year 2020.

But, in the comparison of the effectiveness of the use of the expenditures of the governments of the region, Albania is presented with the lowest level. This fact shows us that the non-fulfillment of planned expenditures is dependent both on the economic costs of unproductive public expenditures, but also on the fact that some of the budget programs are inefficient.

In other words, this means that the overall level of spending is higher than is necessary to meet the objectives of these programs.

Gross capital formation compared to 2021 is presented at an increasing level and this shows the expansion of production capacities in the construction sector, machinery, and equipment for energy and in the processing sector.

Normally, this ratio is around 20-23% of gross value added. However, even though this indicator does not summarize all investments made in real estate by the government or the private sector, if compared to the indicator level, a significant difference can be seen between the average indicators of developed countries and the indicator in Albania.

From the comparison of the level of gross capital formation in the countries of the Western Balkans for the year 2022, Albania ranks last with the level of 25% of GDP.

With this low level, in addition to the loss of pace to catch up with the competitiveness of the region, the formation of gross fixed capital seems to affect in 2023 even less stimulation of household expenses. However, Albania vows to have built the full legal framework for investment support, as a remedy to increase income, consumption and reduce poverty.

Secondly, from the study on tourism statistics, it appears that from the entrances of foreign visitors to Albania, it is calculated that there is an inflow of 2.84 billion Euros converted from all the different currencies in Albania or received through the banking system. Meanwhile, from the outflows of Albanian visitors abroad, it is calculated that there is an outflow abroad of 1.77 billion Euros spent through cash and through the banking system. So, the effectiveness of the economy from the incoming and outgoing flows of tourism is calculated at a net value of 1.07 billion Euros.

Based on the small influential weight of tourism in the labor market, as an industry with problems that indicate an unstable sector, even though it may have influenced the growth of the Albanian regional economies, it should not be seen as a weighty factor, if they are not completed its constituent elements.

Thirdly, using the organic connection of the tourism industry with the construction sector, when we study the data for it, it seems that its main weight has an impact of at least up to 4% on economic growth in 2022 according to official statistics, the largest weight of the sector where the government has spent up to 950 million euros for capital investments in transport, health, educational, agricultural, administrative infrastructure, etc.

During years of economic growth, it is seen that construction is growing faster as a norm than the economy, but in periods when the economy may begin to feel the difficulties of stagnation, the construction industry according to all historical experience is the first to suffer.

This situation appears in 2022, when while the expansion of construction activity is driven by factors that are outside of market demand, consumer demand was not transmitted to the banking market in the availability of housing loans for individuals, nor in the increase in ordering contracts.

An analogous situation follows for the first 6 months of 2023.

The Construction sector has become in the last 5-6 years a sector led by public investments, where the government is showing high interest and it has no intention of focusing on other sectors with the same attention.

A more proactive approach would ensure that growth was more inclusive and as such would not sideline other occupations from the country’s development process. The overvaluation of professionals of only one sector and the industry related to it to the disadvantage of other professions, which do not find themselves in the process of planning and allocation of the public budget and other foreign funds, gives its own impacts on non-sustainable development.

In this study, it is shown that the high volatility of consumption is a natural consequence of having a large informal sector and a weak formal sector. This result derives from the fact that workers can move between the formal and informal sectors when there are economic factors that affect both sectors asymmetrically.

We, through the presentation of data on the indicators of final family consumption and final consumption of the government, together with the components of gross capital formation and related data in a comparative way not only within Albania, but also the countries of the region bring us into focus the study that consumption and consumers are very vulnerable to the developments offered by the market.