In this analysis on the challenges and policy responses to economic and trade fragmentation, we will discuss the key issues presented in Alfred Kammer\u2019s speech[1] and their impact on the Central, Eastern, and Southeastern Europe (CESEE) region, including Albania, also integrating the approaches of our experts regarding these topics, presented continuously during 2024 and early 2025.<\/p>\n\n\n\n
1. Economic growth and trends for 2025<\/strong><\/p>\n\n\n\n The economy of the Central, Eastern, and Southeastern Europe (CESEE) region experienced a significant recovery during 2024, growing from 0.8% in 2023 to 2.5% in 2024. This improvement was supported by domestic demand, with increases in consumption and investment, while exports did not have the same positive effect as in 2023. For 2025, the IMF forecasts a modest growth of 3%, but with a trend of weakening economic cycle.<\/p>\n\n\n\n Implications for Albania<\/strong> include the country’s economic growth, which has been supported by tourism, remittances, and EU support\u2014factors that may offer some insulation from the decline in external demand. However, consumption growth in Albania has been linked to wage increases and inflation, and the slowing pace of wage growth will negatively affect private consumption.<\/p>\n\n\n\n In ALTAX analyses on Albania\u2019s economic growth dynamics, it is noted that the factors driving growth in recent years\u2014tourism, remittances, and EU fund support\u2014continue to be key sources of economic resilience. However, a potential decline in these factors, due to general economic uncertainty, would limit Albania\u2019s capacity to sustain its growth pace.<\/p>\n\n\n\n A concrete example is the impact of tourism on the Albanian economy. According to ALTAX data, tourism accounted for over 20% of GDP in 2024, generating significant income for the services sector. If the decline in demand from EU countries continues, this will directly affect the hospitality sector and the domestic economy. Likewise, the pace of domestic consumption is slowing, reflecting similar trends seen in other CESEE countries.<\/p>\n\n\n\n 2. Geoeconomic fragmentation and challenges for Albania<\/strong><\/p>\n\n\n\n According to IMF analysis, the CESEE region faces three major challenges in a fragmented global environment:<\/p>\n\n\n\n In this context, Albania is particularly vulnerable to high energy costs in Europe, which also affect Albanian businesses, especially those that export. Albania is not as integrated into global supply chains as other CESEE countries, but it heavily depends on imports and trade with the EU. If policymakers fail to ensure fiscal stability, the rise in public debt and dependence on external financing could become problematic.<\/p>\n\n\n\n ALTAX has analyzed the impact of high energy prices on Albania\u2019s manufacturing and construction industries. For example, the price of electricity for Albanian businesses is on average 30% higher than in some countries in the region, such as Serbia and North Macedonia, creating a competitive disadvantage for Albanian exporters.<\/p>\n\n\n\n Another challenge is Albania’s dependency on trade with EU countries. Nearly 70% of Albanian exports go to the EU, where the textile and apparel sectors are among the most affected by trade fragmentation and supply chain fluctuations.<\/p>\n\n\n\n A concerning aspect identified by ALTAX is the impact of minimum wage increases on competitiveness. According to IMF data, wage growth in Poland, Romania, Bulgaria, and Hungary exceeded 10% in 2024, affecting production costs. In Albania, the increase in the minimum wage has helped workers but has simultaneously raised business costs, making the Albanian market less attractive for foreign investors.<\/p>\n\n\n\n 3. Policy measures for economic stabilization<\/strong><\/p>\n\n\n\n How can governments in the region and Albania address these challenges?<\/strong><\/p>\n\n\n\n The IMF suggests an integrated approach with several key measures:<\/p>\n\n\n\n a) Fiscal consolidation<\/strong><\/p>\n\n\n\n The IMF emphasizes that even after the economic recovery, CESEE countries\u2019 fiscal balances have not improved significantly. For Albania, this means the need for a cautious public debt management policy.<\/p>\n\n\n\n According to ALTAX’s analysis of the 2025 budget, the Albanian government should focus on increasing revenues by expanding the tax base and reducing informality, rather than raising existing taxes. For example, the improvement of the electronic invoicing system increased VAT revenues by 8% in 2024, a policy that should be further deepened.<\/p>\n\n\n\n b) Monetary policy and inflation<\/strong><\/p>\n\n\n\n One of the IMF\u2019s main concerns is that inflation may remain above central bank targets in some CESEE countries. In Albania, the Bank of Albania’s policy has been conservative, with increased interest rates to combat inflation.<\/p>\n\n\n\n At ALTAX, we observe that while inflation is falling from recent high levels, the risk of \u201centrenched inflation\u201d remains, especially in the food and energy sectors for businesses. For this reason, a more flexible monetary policy would be necessary to support business lending without creating inflationary pressures.<\/p>\n\n\n\n c) Structural reforms<\/strong><\/p>\n\n\n\n Another IMF finding is that CESEE countries lag behind in structural reforms compared to more developed European countries. Albania should focus on improving the business climate, reforming public administration, and developing financial markets.<\/p>\n\n\n\n A concrete example analyzed by ALTAX is the lack of access to financing for small and medium-sized enterprises (SMEs). Only 25% of SMEs in Albania obtain bank loans, compared to 45% in the EU. This is a gap that needs to be addressed through policies that promote lending and diversify financial instruments.<\/p>\n\n\n\n In 2025, Albania\u2019s economy will face significant challenges stemming from two main factors: global trade fragmentation and the slowdown of domestic consumption.<\/p>\n\n\n\n Trade fragmentation<\/strong> refers to changes in the dynamics of international trade, primarily caused by geopolitical tensions such as the war in Ukraine and uncertainties about global trade policies. These factors directly affect the economies of Central, Eastern, and Southeastern European (CESEE) countries, including Albania. For a small economy reliant on external markets, trade flow disruptions can have negative consequences for exports and investments. For instance, if Albania\u2019s main trading partners\u2014such as Italy and Germany\u2014experience an economic slowdown or impose additional barriers on Albanian products, Albanian exports will decline, reducing income and employment in key sectors such as apparel and agriculture.<\/p>\n\n\n\n The slowdown in domestic consumption<\/strong> is another factor that may constrain economic growth. Household consumption is a key pillar of Albania\u2019s economy, supported by family incomes, wage growth, and remittances. However, in 2025, wage growth is expected to slow, while the inflation of recent years has reduced consumers\u2019 purchasing power. Furthermore, economic uncertainty has led many households to increase their savings, reducing spending on goods and services. This trend is also observed in other CESEE countries, where individuals are becoming more cautious with their finances due to economic uncertainty and a lack of optimistic expectations for the future.<\/p>\n\n\n\n One of the main concerns is the rising cost of energy and wages<\/strong>, which could harm the competitiveness of Albanian exporters. Export-reliant manufacturing sectors such as textiles, apparel, and some segments of the food industry are more exposed to these pressures. If wage increases are not accompanied by productivity growth and investment in technology, Albanian businesses will lose ground in international markets. Additionally, rising energy prices for businesses and consumers could limit consumption and increase production costs, reducing enterprise competitiveness.<\/p>\n\n\n\n In this context, fiscal policy should focus on debt stabilization and reducing informality.<\/strong> The increase in public debt in recent years has placed pressure on public finances, limiting the space for supportive policies during future crises. In ALTAX analyses, one of the most effective strategies for improving fiscal sustainability is increasing revenues through tax base expansion and improving fiscal administration. Tackling informality remains one of the biggest challenges, given that a large portion of economic activities in Albania are not fully declared. A clear strategy to reduce informality includes digitizing the tax system, easing procedures for businesses, and strengthening the capacity of the tax administration to monitor and collect revenues more efficiently.<\/p>\n\n\n\n In conclusion, structural reforms are key<\/strong> to ensuring sustainable growth and keeping Albania competitive in international markets. These reforms should focus on improving the business environment, modernizing infrastructure, developing human capital, and fostering innovation. If Albania aims to attract foreign investment and build a more diversified economy, it is necessary to improve legal certainty for investors, reduce bureaucracy, and ensure a favorable environment for enterprise development.<\/p>\n\n\n\n In the current context<\/strong>, Albania has the opportunity to draw on the experiences and models of other CESEE countries to build a more sustainable economy that is better integrated with global markets. By taking balanced measures based on accurate economic analysis, it is possible for the country to confront new challenges without jeopardizing its long-term growth and stability.<\/p>\n\n\n\n Main source of analysis: Speech by Alfred Kammer, Director, IMF European Department, Amsterdam, February 14, 2025<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" In this analysis on the challenges and policy responses to economic and trade fragmentation, we will discuss the key issues presented in Alfred Kammer\u2019s speech[1] and their impact on the […]<\/p>\n","protected":false},"author":2,"featured_media":20982,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[9756],"tags":[9763,16357,16354,16355,16356,8810,16292,14306,16195],"class_list":["post-21697","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-albania-en-2","tag-alfred-kammer","tag-cesee","tag-economic-analysis","tag-global-integration","tag-imf","tag-long-term-growth","tag-stability","tag-sustainable-economy"],"featured_image_src":{"landsacpe":["https:\/\/altax.al\/wp-content\/uploads\/2025\/02\/gjeopolitika-FMN-CESEE-1024x445.webp",1024,445,true],"list":["https:\/\/altax.al\/wp-content\/uploads\/2025\/02\/gjeopolitika-FMN-CESEE-463x348.webp",463,348,true],"medium":["https:\/\/altax.al\/wp-content\/uploads\/2025\/02\/gjeopolitika-FMN-CESEE-300x300.webp",300,300,true],"full":["https:\/\/altax.al\/wp-content\/uploads\/2025\/02\/gjeopolitika-FMN-CESEE.webp",1024,1024,false]},"yoast_head":"\n\n