The European Commission has released today its Spring Forecast report on the Albanian economy during 2025-2026. Following a period of strong economic growth in recent years, Albania’s economy is expected to continue expanding, albeit at a more moderate pace. The European Commission’s Spring Forecast anticipates GDP growth of 3.6% in 2025 and 3.5% in 2026, mainly driven by strong domestic demand. Key sectors such as tourism and services exports remain important contributors, while goods exports are expected to recover after two challenging years. Inflation, which declined significantly in 2024, is projected to gradually return to the central bank’s target of 3% by 2026.

The public debt-to-GDP ratio is forecast to decrease only gradually, driven by nominal GDP growth.

Economic activity to remain robust Albania’s economic growth remained strong at 4% in 2024, driven by robust domestic demand, good tourism performance and sustained construction activity. The rise in household consumption was supported by increasing real wages amid slowing inflation, and by accelerating credit growth. Public consumption growth was elevated on the back of the second phase of the public wage reform. Job creation in the services sector supported employment growth. Exports of services expanded, but goods exports fell significantly due to an unfavorable external environment and the appreciation of the lek.

Similarly to 2023, most economic sectors recorded positive output growth, but agriculture and industry contracted. In 2025-2026 GDP growth is forecast to moderate compared to previous years but remain robust at 3.6% and 3.5% respectively. Public consumption growth is projected to slow down as the impact of the public wage reform fades, while private consumption, supported by growing real wages and improvements in the labor market, is set to remain strong over the forecast horizon. Investment growth is underpinned by favorable financing conditions and the implementation of the Reform

Agenda under the EU Reform and Growth Facility. On the external side, services exports are expected to continue expanding, but the growth in tourist arrivals is set to soften from the double-digit growth rates seen in previous years. After bottoming out in 2024, goods exports are projected to recover somewhat as the merchandise sector is undergoing structural changes, and the effect of the currency appreciation softens. The current account deficit is set to increase slightly from its historic low registered in 2023, but remains much below its long-term average, pointing to structural improvements brought about by the increase in tourism.

This outlook is subject to downside risks, linked to changes in the exchange rate and interest rates and increasing shortages of skilled labor aggravated by emigration. As a small open economy, Albania is exposed to external risks related to the economic impact of the tariffs on its main trading partners in the EU, such as Italy. Moreover, global uncertainty and geopolitical risks may affect FDI inflows.

Employment gains set to moderate

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

Rapid fall in inflation in 2024 set to be followed by a pick-up

Inflation dropped from 3.4% in January 2024, its highest reading in the year, to 2.1% in December, leading to an annual average inflation rate of 2.2%, down from 4.8% a year before. This decline was primarily driven by lower food and oil prices, alongside the steady appreciation of the lek.

Headline inflation excluding food and energy also dropped in 2024. In reaction, the Bank of Albania implemented two reductions in the policy interest rate in 2024, lowering it from 3.25% to 2.75%.

Average annual inflation is projected to increase in 2025, supported by higher imported inflation, and to reach the central bank’s target of 3% in 2026.

Fiscal deficit is set to widen before narrowing in 2026

In 2024, the general government budget deficit narrowed to 0.7% of GDP, which was lower than the budget target of 2.3%. While revenues performed well, this fiscal outcome was partly the result of public investment under-execution. The budget deficit is set to widen to 2.4% of GDP in 2025 on the back of higher expenditure, in particular capital spending. Revenue growth is expected to be supported by the implementation of the medium-term revenue strategy over 2025- 2026, which focuses on enhancing tax and customs administration. A lower expenditure-to GDP ratio (driven by both current and capital spending) is projected to help decrease 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 projected to decline in 2025-2026 at a more moderate pace, driven by nominal GDP growth.