Albania will remain attached to a relatively low
growth trajectory over the coming years, amidst weak private consumption and
government fiscal consolidation efforts.
More efforts need to be made to implement structural
reforms aimed at tackling corruption and improving labour market flexibility,
if Albania is to have any hope of converging with historically more developed
regional peers.
Albania's large and entrenched trade balance
shortfall will ensure that the country's current account remains firmly in
deficit over the coming years.
Uncertainty in neighbouring Greece throughout the
country's 2015 debt crisis will increase the scope for regional instability. It
will also weigh on demand for Albanian exports to Greece and remittances
inflows from Albanian workers based in Greece.
Real GDP growth is highly likely to slow over the
coming years owing to a number of factors: slowing growth in the working age
population, a high share of government spending relative to GDP, a reversal in
the country's terms of trade and the growing risk of deflation. These
impediments will result in real GDP growth averaging 2.3% over the next decade,
down from 2.9% over the past decade.
The Australian Labour Party remains in prime position
ahead of the general election (to be held by January 14 2017). Malcolm
Turnbull's appointment as Australia's 29th Prime Minister in October will do
little to improve the Liberal-National's coalition sliding popularity. We
remain bearish on the Australian dollar despite the large fall we have already
seen in the currency. While valuations are no longer a headwind to the
currency, the trend remains very bearish. Weak economic growth owing to falling
investment and correction in the property market amid elevated indebtedness
does not bode well for the AUD.
Australia's fiscal accounts are unlikely to return to
a surplus any time soon, given downside risks to revenue collection and a lack
of expenditure cutbacks. Total revenue collection will remain poor as the
economy continues to weaken, which will weigh heavily on tax receipts.
Meanwhile, objections to spending cuts from the public, opposition and
crossbench senators as well as other state governments indicate that the
Australian government will struggle to keep its expenses and borrowing on a
sustainable trajectory. While there is currently no danger of a fiscal crisis,
our core view is that this growing burden of the government will undermine the
productivity of the private sector and take its toll on economic growth over
the medium term.
Australia's current account picture is gradually
improving in spite of deteriorating terms of trade, thanks to higher export
volumes and lower income outflows. Going forward, we maintain that a current
account surplus is likely as the Australian dollar depreciates, but this will
increasingly be driven by lower imports, to the detriment of the domestic
economy.
We expect the Reserve Bank of Australia (RBA) to cut
its cash rate by 50 basis points (bps) to 1.50% by H116 as overall economic
growth deteriorates owing to a slowdown in residential construction activity,
declining investment in the resources sector amid depressed iron ore and coal
prices, intensifying drought fears, and tightening financial conditions.
Major Forecast
Changes
- We lowered our cash rate forecast for 2016 to 1.50%
(versus 2.00% previously) as worsening economic activity amid subdued inflation
will prompt the RBA to reduce its key policy rate by 50bps by 1H16.
- We lowered our end-2015 and end-2016 AUD forecasts
to USD0.6600/ AUD and USD0.6000/AUD, respectively (from USD0.7000/AUD and
USD0.6600/AUD previously) given that fundamentals remain poor and that the
Aussie remains on a downtrend.
- We revised our 2015 and 2016 current account
deficit as a share of GDP forecasts to 3.5% and 3.0%, respectively (versus 2.3%
and 1.7% previously), given the greater than expected widening of the goods and
services trade deficit.
Algeria's economic growth will slow markedly over
2016. Under the pressure of lower oil prices, the government will adopt a
greater shift towards spending cuts and protectionism. These trends will weigh
on investment and consumption over the coming quarters, and we forecast the
economy to grow by only 1.9% in real terms - the weakest rate since 2009.
The Algerian dinar will continue to gradually weaken
against the US dollar throughout 2016, albeit at a slower pace. Oil prices are
not set for a quick recovery, and the trade fundamentals of Algeria's economy
remain bleak – factors that will weigh on the currency. However, the government
will be reluctant to permit too great a slide of the dinar as pressures on
households rise.
While lower oil prices will put further pressure on
the Algerian regime over the coming years, we do not expect a return to the
unrest of the late 1980s. The ruling elite will remain successfully in control
for the time being, despite the sclerotic state of the economy.
Algerian President Abdelaziz Bouteflika's fragile
state of health will intensify the regime's internal divisions, with rival
factions competing against each other in the battle for succession. This will
nurture policy paralysis and weaken Algeria's already-limited pace of political
and economic reform. However, whoever ultimately emerges as the next president
is highly unlikely to change the structure of the regime or improve the system
of governance.
Although the Algerian government has called for more
foreign investment into the country, we expect FDI inflows to remain sparse in
the years ahead. Foreign investors will remain deterred by numerous
restrictions and Algeria's weak business climate, and we do not anticipate any
comprehensive liberalisation of the economy.
Algeria is set to move into an even more
protectionist direction in response to the fall in international oil prices.
However, renewed steps to limit imports and strengthen the domestic production
base will have highly limited success
Core Views As a result of ongoing political violence,
a significant degree of productive capacity (both physical and human)
throughout the Libyan economy has been lost. Road, housing and utility
infrastructure have suffered considerable damage and will take years to repair
under even the most stable of political environments. Moreover, given the
importance of the hydrocarbon industry, damage to oil production and refining
infrastructure will pose significant long-term challenges. Libya's political
and security climate will remain volatile through 2016, as competing militias
compete for control over the country's vast resource wealth. A lack of
institutional capacity will hamper reconstruction efforts. Libya lacks the
institutions necessary to carry out much-needed investment projects. Low oil
prices, coupled with protracted political instability, will result in minimal
new investment in the oil sector over the coming years. The economy's growth
potential will depend on three key variables: the speed and scale of oil
production; the state of the underlying security environment; and the state of
the utilities sector – in particular, the provision of a stable supply of
electricity. Rapid growth rates in 2016 result from base effects, and mask key
structural weaknesses in the country.
