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Analysis/Confidence of Albanians in the economy grows

Analysis/Confidence of Albanians in the economy grows
Last year marked a pessimistic start for many Albanians. They were skeptic on the economic situation in the country. Businesses also had negative expectations.

But the second quarter of 2016 changed things. Economic growth was evident and consumption saw an increase.

Based on these facts, consumer and business confidence on the economy of the country grew.

These are the results of the regular observations that the Bank of Albania makes each quarter.

In the recent hours, the data for the third quarter of the year that ended have come out.

The recent observation of BoA on the economic sentiment indicator has significantly increased, namely 18.6% above the long term average.

According to BoA, this performance relates to the improvement of confidence in the sectors of services and construction and the improvement of consumer confidence.

”Economic Sentiment Indicator (ESI) intensified the upward trend reflecting the improvement of confidence in the services and construction sectors, as well as the improvement of the consumer confidence”, the report of the BoA says.

Meanwhile, the report says that confidence in the sectors of industry and trade have seen a slight drop, but their level is still above the historical average.

“Industry Confidence Indicator (ICI) fell by 3.3 percentage points in 2016 Q4. However, the indicator remains 8.4 percentage points above the historical average (Chart 2). The balance of production and order books fell by 6.3 and 4.5 percentage points, respectively, thus determining the ICI's direction”.

On the other hand, consumers’ confidence on the economy has risen by 4.8% and is 3% above its historical average.

Referring to the observation, the four components that make up this indicator are positive. On top of the list is the balance of great purchases and that of the general expectation for the economy.

Citizens are also optimistic about great purchases in the future, the current situation and the expected level of savings.

The results of the observation, the main points:

The decline by 0.9 percentage point of the other component balance, stocks of inventories2 , led to the improvement of ICI. The balances not included in ICI such as: export orders, expectation for production and employment in the next quarter, decreased during 2016 Q4.

Firms operating in the industry sector utilized the capacities on average at 73.4%, or 3.6 percentage points lower than in the previous quarter, but remaining above the historical average of 72.4%.

Meanwhile, the balance of the firms’ financial situation has improved.

The Construction Confidence Indicator (CCI) continued its upward trend during 2016 Q4, resulting in about 2.5 percentage points above the level in the past quarter and 7.2 percentage points above the historical average.

The improved confidence in this sector is attributable to the improvement of the two balances: construction activity and order books, which increased by 4.3 and 0.6 percentage points, respectively.

Other balances related to the employment and the financial situation continued to increase, whilst the balance of employment expectations for the next quarter was downward.

Capacity utilization rate in the construction sector is estimated on average at 65.6%, or 3.7 percentage points lower than in the previous quarter. However, this rate stands 5.6 percentage points above the level of the previous year and 1.0 percentage point above the historical average.

The Services Confidence Indicator (SCI) continued its upward trend in 2016 Q4 (+13.2 percentage points). SCI stands significantly above its historical level by about 22.5 percentage points. Improvement of confidence in services is mainly attributable to the increase of its two balances: business situation (+16.7 percentage points) and demand (+9.6 percentage points).

Also, firms operating in the services sector assess that the balances of financial situation and employment have increased. Expectations for demand and employment for the upcoming quarter increased during the fourth quarter.

Capacity utilization rate is estimated on average at 80.6%, or 2.0 percentage points higher than in the previous quarter and 4.1 percentage points above the historical average. Trade Confidence Indicator (TCI) fell by 1.6 percentage points during 2016 Q4, but remains above its historical level by 6.3 percentage points. This performance was determined mainly by the decline of one of its balances: employment expectation for the next quarter by 3.4 percentage points.

Meanwhile the other balance, business situation resulted slightly higher, (+0.1 percentage points) compared to the previous quarter. Employment balance improved during 2016 Q4, whilst other balances related to the financial situation and expected business situation for the next quarter, decreased.

Capacity utilization rate, in average terms, stands at 74.6%, unchanged from 2016 Q3, remaining 3.6 percentage points lower than its historical average. The Consumer Confidence Indicator (CCI) improved its dynamics during 2016 Q4, increasing by 4.8 percentage points. As a result, CCI stands 3.0 percentage points above its historic average (Chart 6). All four balances contributed to the upward side of the CCI'S value during 2016 Q4: - major purchases (+7.4 percentage points); general economic situation expected in the country (+5.5 percentage points); expected financial situation of households (+4.5 percentage points); income and spending situation (+1.7 percentage points). Other balances that increased during 2016 Q4 are: major purchases in the future, and current and expected saving situation.

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