According to data from INSTAT, the Albanian economy grew by 2.7% in the third quarter of 2012, and similar growth rates are expected for the fourth quarter as well. Services, industry and agriculture sectors supported the economic growth, while the construction sector continued to contract. Assessment of third-quarter and fourth-quarter aggregate demand components confirms, to a great extent, the expectations noticed from previous periods. Foreign demand has been  BIS central bankers’ speeches  1  the main driver of economic growth in the country. Net export deficit narrowed in the third quarter of the year, mainly due to growth in exports of goods and services. Third-quarter data attest to continuation of this trend. During October-November, exports grew by 14.3%, while imports fell by 5% on a year earlier. As a consequence, trade deficit has dropped by 15.5%, y-o-y. On the other hand, the domestic demand has remained sluggish due to lack of fiscal stimulus and slow performance of consumption and private investments. Indirect available data for the third quarter of the year depict improved consumption but low private investments due to incomplete capacity utilization on production, uncertainties about the future and tighter financing conditions. Fiscal indicators have reflected the overall performance of the economy and the fiscal consolidating policy pursued in 2012. Slow growth in budget revenue and expenditure, and budget deficit contraction characterise fiscal developments. Fiscal revenue for the first 11 months of the year increased by 2.0%, y-o-y, reflecting the low contribution of related taxable component.

Overall, controlling the borrowing in the domestic money market, expanding the Government securities investment base and stabilising the risk premia in the economy create grounds for a better functioning of transmission channels in the future. Therefore, the Bank of Albania believes that the longterm public debt sustainability and public borrowing constraint in the domestic money market help enhance the monetary policy effectiveness and increase the space for the private sector credit of the economy. Monetary indicators were characterised by slowing growth rates in the second half of the year. They signal low monetary inflation pressures on the economy. The annual monetary supply growth averaged 5.9% in October and November, supported primarily by developments in the external sector of the economy. Money demand by the domestic agents of the economy was low. The increase in households’ participation in public debt securities was reflected in lower financing of this sector by the banking system. Businesses’ and households’ demand for funding decelerated significantly, reflecting the low demand for consumption and investments. Also, banks continued to pursue a more prudential approach in lending, applying tight standards in response to uncertainties perceived at sector level and the economy. Responding to them, annual growth of credit to economy reached 4% in November. Credit to economy was based on the 18% increase in ALL-denominated loans, against the 3.2% decline in foreign currency-denominated loans. Also, credit growth continued to be driven by increase in business loans, while consumer loans and home loans appeared rather low.