52 This looks at the structural economic characteristics of different regions and provides a way of summarising and ranking them. The particular way it does so is by measuring their “economic complexity”, following the work of Hidalgo and Hausmann (2009) in the context of international trade. Without going into the technicalities, the complexity index can loosely be thought of as weighing the two structural characteristics of an economic area which theory would suggest are crucial for economic success. The first is the degree of specialism or comparative advantage in a particular product or industry: the greater this specialism, the greater an area’s complexity. The second is the degree of diversity in this specialism across products and industries: the greater this diversity, the greater an area’s complexity.53  Though the construction of an Economic Complexity Index (ECI) is itself complex, the principles underlying it are not. An economic area exhibits complexity when it has a diverse set of highly-specialised industries. An  52  Mealy and Coyle (2019). This description sets out a stylised interpretation of ECIs as they were originally conceived by Hidalgo and Hausmann (2009). Recent work by Mealy, Farmer and Teytelboyn (2019), however, has re-assessed the interpretation of ECIs and found that diversity is mathematically orthogonal to ECIs. In this new interpretation, ECIs instead provide a useful way to understand place-based similarly in industrial specialisations. 53  38  All speeches are available online at www.bankofengland.co.uk/speeches  38  area lacking complexity has few or no industries or products which are specialised.

Latest financial market developments have reflected the easing monetary conditions and low or downward premia of inflation and liquidity risks. Interbank rates have been downward, following the monetary policy signals. Also, upon resolving the structural problems in the primary market, the treasury bill yields dropped sharply on all maturities. In a tranquil financial market and lacking additional shocks in the future, the previous monetary policy easing is expected to be passed on to other financial market segments. Under these conditions, raising the monetary stimulus in the economy would further boost aggregate demand, without affecting the price stability in the medium term. Developments in lending and financial markets reflect households’ and businesses’ reluctance to make long-term commitments. However, the low degree of credit growth reflects the banks’ cautious in terms of lending. In this context, the Bank of Albania points out that, notwithstanding the externally generated short-term risks, the medium and long-term outlook for Albania remains sound. Albanian consumers and businesses should be more realistic about their development plans and adopt a more pragmatist approach to increase current investments and consumption. Also, the banks’ sound balance sheets should provide more financial funds to support the economy by increasing lending. Looking forward, the new information obtained during the last month confirms our previous projections on the expected performance of the Albanian economy over the monetary policyrelevant horizon. The Albanian economic activity is expected to grow at positive but low and below potential rates. The poor performance of private investments and consumption restricts the room for economic growth.