EC report: Albania's economy expected to slow down in 2025-2026

The European Commission expects the Albanian economy to slow in 2025-2026, to 3.5-3.6%, after strong growth of 4% in 2024.

The Commission bases the forecast on factors such as the slowing impact of wage increases in the public sector, slower growth in tourism, and the bottleneck caused in the labor market as a result of emigration, which is increasingly reducing the skilled labor force.

“After a strong growth momentum in previous years, Albania’s economy is expected to grow by 3.6% in 2025 and 3.5% in 2026, led by domestic demand. Supported by tourism, services exports are expected to continue to expand, while goods exports are expected to recover somewhat after two years of significant contraction. After a rapid decline in 2024, inflation is expected to gradually return to the 3% target next year. The fiscal deficit is expected to widen before falling below 2% of GDP in 2026. The public debt-to-GDP ratio is projected to decline only gradually, driven by nominal GDP growth,” the report says.

The EC emphasizes that Albania's economic growth remained strong in 2024, at 4%, led by strong domestic demand, good tourism performance and stable construction activity.

Household consumption growth was supported by real wage growth amid slowing inflation, as well as by accelerating credit growth. Public consumption growth was strong due to the second phase of the public sector wage reform. Job creation in the services sector supported employment growth. Services exports expanded, but goods exports declined significantly due to an unfavorable external environment and the strengthening of the lek.

Similar to 2023, most economic sectors recorded production growth, but agriculture and industry contracted.

In the period 2025–2026, GDP growth is projected to moderate compared to previous years, but remain stable at 3.6% and 3.5% respectively.

Public consumption growth is expected to slow as the impact of the wage reform fades, while private consumption, supported by real wage growth and improvements in the labor market, is expected to remain strong throughout the forecast horizon. Investment growth is supported by favorable financing conditions and the implementation of the Reform Agenda under the EU Reform and Growth Mechanism.

On the external front, services exports are expected to continue to expand, but growth in tourist arrivals is expected to moderate from the double-digit levels of recent years. After a sharp decline in 2024, goods exports are projected to recover somewhat, as the goods sector undergoes structural changes and the effect of currency appreciation fades.

The current account deficit is expected to increase slightly from the historically low level recorded in 2023, but remain significantly below the long-term average, indicating structural improvements brought about by the growth of tourism.

The EC predicts that risks remain on the downside, related to changes in exchange rates and interest rates, as well as the increasingly severe shortage of qualified labor, exacerbated by emigration.

As a small and open economy, Albania is exposed to external risks related to the economic impact of tariffs on its main EU trading partners, such as Italy. Furthermore, global uncertainties and geopolitical risks may affect the inflow of foreign direct investment.

Employment increased in 2024 and is expected to continue to grow in 2025–2026, albeit at a more moderate pace. A higher labor force participation rate is expected to be the main driver of labor supply growth, while continued emigration is likely to be a constraint. The unemployment rate is expected to remain stable, while wages continue to rise.

In 2024, the general government budget deficit narrowed to 0.7% of GDP, lower than the budget target of 2.3%. While revenues performed well, this fiscal outcome was partly the result of underperformance in public investment. The budget deficit is projected to widen to 2.4% of GDP in 2025, due to increased spending, especially capital spending.

Revenue growth is expected to be supported by the implementation of the medium-term revenue strategy during the period 2025–2026, which focuses on improving tax and customs administration.

A lower expenditure-to-GDP ratio (driven by cuts in both current and capital spending) is expected to help reduce the budget deficit to 1.9% 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 55% in 2024, supported by a positive primary balance, nominal GDP growth and the appreciation of the exchange rate. The debt ratio is expected to decline further in 2025–2026, but at a more moderate pace, driven by nominal GDP growth, the EC emphasizes./ Monitor