Albania

Robust growth, continued to be sustained by domestic demand and tourism

Growth has remained robust in 2025 thanks in particular to renewed domestic demand. Household consumption is supported by a persistently strong labour market and confirmation that inflation has stabilised below the Albanian central bank's target of 3%. Investment is benefiting from improved financial conditions and the implementation of European funds for Balkan candidate countries, which are earmarked according to each country's GDP and population. Albania could receive up to EUR 922 million in loans and grants by the time it joins the EU, provided it meets the objectives set. In addition, the boom in tourism is continuing to stimulate private and public investment in residential construction and major infrastructure (airport, seaport, transport network, etc.).

In addition, exports are driven by services, which continue to benefit from the development of the tourism sector (26% of GDP in 2024), thereby supporting the lek. Tourism broke records again in 2024 with 11.7 million international arrivals (+15.2% compared to 2023) and nearly EUR 5 billion in foreign tourist spending (+55%). Furthermore, exports of goods are expected to gradually recover after two years of sharp contraction related to an unfavourable external environment and lek appreciation. Nevertheless, external demand will be subject to the slow recovery of European partners on which Albania is heavily dependent, at a time when their industrial activity is subject to uncertainty surrounding potential US customs duties.

A structurally high trade deficit

The 2025 budget provides for a historic EUR 8.2 billion in public spending (32% of GDP), including EUR 1.6 billion in investments (6.2% of GDP). These investments are mainly intended to finance a wide range of infrastructure projects, including the start of construction of the port of Porto Romano and the extension of road and energy networks. Second, revenues are being boosted by strong domestic activity, higher income tax revenues following significant public sector wage increases in July 2024, and the fight against informality and tax evasion. This will limit the increase in the overall deficit. The primary balance (i.e., excluding debt interest) is expected to be balanced. In this context, the debt ratio will continue to decline, thanks to strong economic performance and lek appreciation (around 45% of the debt is denominated in foreign currency).

The current account deficit is expected to grow in 2025, driven by a widening goods deficit and slower growth in tourism. While lek appreciation will reduce the cost of imports, particularly of energy, intermediate products and capital goods, exports, which are already limited and subject to uncertainty in Europe, are likely to be penalised. In addition, imports will be driven by strong domestic demand, particularly in the construction sector. At the same time, the tourist boom, while occurring at a slower pace, will continue to support the services surplus, and expatriate remittances will maintain the positive secondary income balance. Foreign direct investment (7% of GDP in 2024), mainly in construction, tourism and energy, will continue to finance a large part of the deficit.

Confirmation of political continuity promotes European integration

With a weak opposition divided by fraud and corruption scandals, the incumbent Socialist Prime Minister Edi Rama won the May 2025 parliamentary elections with 52.1% of the vote. In office since 2013, Edi Rama is now beginning his fourth consecutive term. Thanks to its renewed parliamentary majority of 82 out of 140 seats in Parliament, the socialist government will continue its fight against corruption and organised crime with a view to joining the European Union. On that score, following the invasion of Ukraine, the EU officially opened accession negotiations with Albania and North Macedonia. Discussions on the first “fundamental” chapters of the negotiations were finally opened in October 2024 after they were separated from North Macedonia’s. Nevertheless, despite efforts to reform the judicial system and introduce anti-corruption measures, accession in the short term remains unlikely due to the scale of the reforms yet to be carried out. However, reforms could be accelerated thanks to the EUR 6 billion growth plan proposed by the EU to the Balkan candidate countries.

Moreover, Albania will continue to maintain good relations with Italy, with which an intergovernmental summit is scheduled to take place for the first time in 2025. The agreement on mutual recognition of pension contributions between the two countries will enter into force on 1 June 2025. However, the November 2023 agreement on the relocation to Albania of asylum seekers arriving in Italy quickly met with legal obstacles and is still not applicable at the time of writing. The Rome Court has repeatedly rejected the detention of migrants transferred to the two centres in Albania and has subsequently referred the case to the EU Court of Justice. These centres, which are funded by Italy, are now mainly used to repatriate immigrants whose asylum applications have been rejected and who are therefore facing deportion.

Last updated: May 2025