So far, the increase in income has not led to a pronounced rise in price and wage inflation. Businesses are using resources with steadily greater efficiency and the supply of labour has been ample. Nevertheless, in the face of such strong external influences, it is demanding to smooth developments in the Norwegian economy. Our stabilisation policy rests on four pillars, which were established in the 1990s and in 2001 against the backdrop of the wide fluctuations in economic developments during the first twenty years of the oil age in Norway. Under the oil fund mechanism, increased government petroleum revenues are invested abroad. This curbs the impact of price fluctuations on domestic demand and production - and on inflation and the krone exchange rate. A floating krone exchange rate also has a stabilising effect, as the exchange rate normally appreciates in favourable periods and depreciates during adverse periods. At the same time, the fiscal rule that provides for a steady phasing-in of petroleum revenues and the inflation target anchor expectations concerning developments in the krone exchange rate and inflation. As a result, the impact of a terms-of-trade change, stemming from variations in the oil price, on these variables becomes less pronounced. Moreover, the fiscal rule contributes to restraining the pace at which exposed industries are scaled back. In principle, these policy guidelines are just as conducive for coping with favourable periods as with adverse periods. We will face another test when the terms-of-trade change is reversed and the gains either fully or partly dissipate.

These foreign trade developments materialised in deepened trade deficit during this period, resulting in 19.5% year-on-year. Overall, balance of payments developments confirm the frailty of Albanian economy’s external position. Current account deficit, estimated at 11.8% of the GDP in the first quarter, remains high. The Bank of Albania has constantly underlined the need for taking measures to reduce it and ensuring sustainable funding sources by attracting capital inflows, in the form of foreign direct investments. Balance of payment developments were reflected in a relatively stable exchange rate. Under the conditions of a balancing demand and supply, the domestic currency demonstrated stability, slightly depreciating in effective and nominal terms in May. Future exchange rate performance will be conditioned significantly by external economy balances and individuals’ preferences for their financial asset portfolio structure. Public sector expenditures were an important stimulus of economic activity during the first months of the year. In January–May, these expenditures were up by 10.3% year-on-year, while decelerated fiscal income reflected the private sector’s low demand. These developments were reflected in the budget deficit of about 1.7 times higher compared to a year earlier. Expenditure growth slowed down during the second quarter. This behaviour is expected to continue for the rest of the year, conditioned by the commitment to respect the 2011 deficit and public debt target. This fiscal policy approach is expected to be formalised in the July budget revision, which should take into consideration the public debt’s long-term stability.