Industry sinks, GDP annual decline by 6.8% in January-March

2024-07-12 07:36:00, Ekonomi CNA

Industry sinks, GDP annual decline by 6.8% in January-March

Illustrative photo, taken from Google

The industry has entered the second year of the crisis, where the decline of the sector is not stopping.

The latest INSTAT data on Gross Domestic Product in the first quarter of 2024 showed that the manufacturing industry recorded an annual decrease of 6.8%.

The industry sector is the heart of Albanian exports, but it fell for the fourth consecutive quarter in January-March 2024, making the crisis permanent.

From the last quarter of 2022, processing plants, mainly those for export, are experiencing a systematic decline in activity from the losses created by the devaluation of the Euro, the increase in the minimum wage and the inflation crisis after the war in Ukraine, which reduced demand for goods.

After an increase of 7.4% in 2022, the processing sector fell by about 6% in 2023, a trend that continued in the first quarter of the year.

The decline in the industry in 2024 was the biggest since the second quarter of 2020 (-18%) where the whole world was isolated and movement was restricted to protect against the spread of Covid-19.

The sector is shrinking both in production, in the number of businesses and employees. The number of enterprises with over 50 employees in the industry sector has recorded an annual decrease of 5.3% last year, where it is noted that 29 enterprises have closed their activity, according to INSTAT data.

Sources from the market inform that most of the bankruptcies have been in the clothing and footwear manufacturing sector. In addition to internal factors, factories have been affected by the drop in demand in export markets.

Bankruptcies in the industrial sector are expected to be even higher this year, as in the first months many contracts with clients that had been held with difficulty in the last quarter of 2023 were severed.

Albanian factories faced an unusual demand after the pandemic. Strong demand for goods after the lifting of restrictions from the Covid-19 pandemic in 2021 prompted the opening of new production units.

Factories often had demand for goods two to three times greater than production capacity.

Many of them made investments in technology and expanded further, as a year later, the business climate worsened dramatically. The fall of the euro was the main cause.

In 2021 until now, the Euro has lost 23% of its value in exchange for the Lek, which shows that the profits of exporters who sell in Euro but pay wages and taxes and many raw materials in Lek have decreased to a similar extent.

Experts view the uncontrolled decline in production and the concentration of the economy in only two sectors, tourism and services, as dangerous.

Production is warranted in the transition to higher value chains. /Monitor