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BoA analysis: Oil price hike has increased risks to economic growth

2026-05-15 19:33:10, Ekonomi CNA

An analysis by the Bank of Albania shows that direct exposure is considered controlled, while the economy's absorption capacity has improved significantly in recent years.

This position is supported by the improvement in the economy's energy efficiency, limited consumer exposure due to the low weight of fuels in the consumption basket; and an improved macroeconomic picture, which offers increased room for reaction.

However, the Bank of Albania estimates that the final impact will depend on the duration of the shock and geopolitical developments.

In 2025, oil imports reached about 740 thousand tons, representing about 5.9% of total imports.

According to the Bank of Albania, this shows the sensitivity of the trade balance to fluctuations in international energy markets. The 2022 episode clearly illustrated that strong price increases can worsen the trade deficit and put additional pressure on the balance of payments.

Exposure to the shock is not uniform across sectors of the economy.

Businesses account for the majority of oil consumption, at around 78.3%, while households account for around 21.7%. Furthermore, the share of oil in the household consumption basket is low, at around 3.47%.

However, the impact of price increases on household budgets can also be felt through indirect channels, stemming from the increase in prices of transportation and energy-intensive manufactured goods.

Within the business category, the sectors with the highest oil intensity and, consequently, the most exposed to price shocks are transportation, manufacturing, accommodation and construction.

From a cost perspective, the share of oil expenditure is highest in transport, extractive industries, accommodation, trade and construction. At the economy level, fuel expenditure accounts for about 6.4% of total costs.

The increase in oil prices constitutes a negative supply-side shock, which can be transmitted to the economy directly and indirectly.

The Bank of Albania estimates that the intensity and duration of the impact will depend on the duration of the conflict, the return of production to pre-war levels and the stability of prices in international markets, making this process conditional on geopolitical developments and subject to continuous monitoring.

According to the analysis, the transmission to inflation occurs through two main channels: the direct and immediate-acting channel reflects the increase in fuel prices for consumers in individual transport, and the indirect channels, with slow but more stable action, include several interacting mechanisms.

First, the increase in costs for businesses, which is gradually transmitted to the prices of other goods and services, generating broader inflationary pressures.

Secondly, the weakening of aggregate demand, given that demand for oil is relatively inelastic and rising prices translate into a deterioration in the terms of trade. Finally, the impacts stemming from the slowdown in economic activity and rising inflation in trading partners.

Although at this stage, a full assessment of all the above channels, with a high degree of accuracy, remains difficult to achieve, according to the Bank of Albania's analysis, two main conclusions can be drawn.

In terms of direction, the shock is expected to produce opposite effects on inflation and economic growth: the sustained increase in oil prices exerts upward pressure on inflation, while dampening economic activity through reduced purchasing power, shifting income towards financing imports, and increasing uncertainty.

In terms of timing and quantity, a temporary and limited shock is expected to have transitory effects on inflation, while a prolonged and high increase in energy prices, reflected in production costs and inflationary expectations, could generate more sustained pressures, with more pronounced consequences for both inflation and economic growth.