The European Commission said on Friday it expects Albania's gross domestic product (GDP) to grow by a real 3.8% in 2024, revising upwards its 3.3% projection made in May.

The expansion of the EU candidate country's economy in 2024 is expected to keep close to the 3.9% growth rate recorded in 2023, with household consumption as the main growth driver, the Commission said in its Autumn 2024 Economic Forecast. However, headwinds to GDP growth are expected from weaker exports and a solid rise in imports.

The Commission expects Albania's economic growth to slow down to 3.6% in 2025 and 3.5% in 2026.

Inflation is seen gradually returning to the Albanian central bank’s target of 3% next year, following a steep fall during the first nine months of the year, to 1.9% in September, driven by lower inflation in the country's trading partners and an appreciation of the domestic currency, the lek. “This outlook is subject to downside risks, linked to exchange rate volatility, increasing shortages of skilled labor aggravated by emigration, and a possible resurfacing of inflationary pressures,” the European Commission said.

After a rapid decline in 2024, inflation is expected to gradually return to the 3% central bank’s target next year. The fiscal deficit is set to slightly widen before falling to 2% of GDP in 2026. The public debt-to-GDP ratio is forecast to decrease only gradually, driven by nominal GDP growth.

According to the EC report, employment increased in 2023 and is expected to further grow over 2024-2026, albeit at a more moderate pace. The unemployment rate is expected to decline further. Despite improvements in the labor market, emigration remains an issue. The preliminary results of the 2023 Population and Housing Census, published in June this year, showed that Albania's population fell from 2.8 million in 2011 to 2.4 million in 2023 (a 14% decline), shrinking the working-age population.

Albania’s fiscal position improved in 2023, with the general government deficit decreasing to

1.3% of GDP. In the first nine months of 2024, revenues increased by about 10% y-o-y, in line with the budget plan. Meanwhile, public expenditure, mainly capital spending, was under-executed.

As a result, the budget balance was in surplus over January-September. Nevertheless, for 2024 as a whole, the budget balance is forecast to reach a deficit of 2.3% of GDP on the back of higher spending on public wages, social insurance, and interest costs, and an acceleration of public investment in the remainder of the year.

In 2025, the budget deficit is expected to remain at a similar level before declining slightly to 2% of GDP in 2026. The primary balance is projected to remain in surplus, in line with the national fiscal rule. The government debt-to-GDP ratio fell below 60% in 2023, supported by a positive primary balance and a favorable snowball effect.