Domestic consumption has not totally reflected higher available income generated by higher wages and employment rates, or expansion of funding resources, in the form of consumer loan growth during 2011. In particular, remittances shortfall during the first nine months of the year may have lessened consumption for a part of Albanian households. In addition, relatively high import prices, which burdened Albanian households’ budget in the first half of the year, may have impacted consumption negatively. Against this performance of consumption during the first half, improved balances for large purchases – as suggested by the consumer confidence survey – and more consumer loans granted during the second half, suggest for higher consumption in the third and fourth quarters of 2011. Subdued consumer spending and presence of spare capacities in the economy dampened businesses’ demand for new investments. In parallel, higher lending prudence by banks may have discouraged, in part, the demand for investment loans. Foreign Direct Investments were down during the first quarter of the year. Higher capital expenditures in the last quarter are expected to generate higher contribution of this  2  BIS central bankers’ speeches  component to aggregate demand at year-end. In the mean time, improved lending terms in 2012 are expected to be translated into higher support for the system with investment loans and higher contribution to economic growth by this component of aggregate demand. Fiscal policy was stimulating in 2011, materialised in positive contribution of public spending to aggregate demand.

Moreover, in real terms, according to third quarter’s data, net exports deficit narrowed and contributed positively to aggregate demand. Annualised contraction of net exports deficit is assessed to be resulting from imports of goods and services decline by about 4.2% in real terms and exports upsurge by about 8.6%. Monetary indicators were in line with developments in the economy’s real sector. Our analysis and assessments suggest that higher monetary supply is in accordance with economic agents’ demand for real money, while monetary inflationary pressures in the economy are contained. Growth of M3 aggregate was slower in the second half of 2011, influenced by lower money creation in foreign currencies. During July–October, annual average growth of monetary assets in the economy was 10.4%. Contribution of private sector’s demand for loans remained unchanged. At the end of November, its annualised growth was 10.9%. Crediting remains under the influence of low demand for loans and more prudent lending policies by banks. Economic agents’ behaviour continues to be conditioned by uncertainty for the future, which, in turn, conditions spending and investments in the economy. On the other hand, credit supply is tight, as lending standards performance shows. Financial markets during the second half of 2011 were calm and reflected relatively downward premiums on liquidity risk and inflation. Successive key rate cuts were swiftly reflected in the interbank market. In the primary market, government security yields dropped, reflecting the key interest rate cut as well as the low demand of the public sector for loans.