2  BIS central bankers’ speeches  The so-far economic activity performance and projections for 2013 support the outlook for positive economic growth close to the previous year’s figure. Foreign demand is expected to contribute positively to Albania’s economic growth, but this contribution is expected to be lower due to unfavourable developments in trading partner countries and relatively low diversification of Albanian exports. Private demand is also expected to be positive, taking advantage of monetary stimulus growth and domestic savings utilization. Finally, the public sector is also expected to provide a positive stimulus. Despite the positive growth, the economic activity in Albania is expected to remain below its potential during the current year and the demand-side inflationary pressures are expected to remain low during this time horizon. The Bank of Albania deems that with a 90% probability, the annual inflation as to four quarters ahead is forecasted to fluctuate within the 0.8 – 3.8% band. Low annual inflation rates and forecast for their continuation over the monetary policy time horizon dictate the maintaining and strengthening of the stimulating monetary policy over the next four quarters. * * * Considering the information summarised above, the Supervisory Council deems that consumer price pressures in Albania remain weak along the monetary policy time horizon and have shifted downward during the last months. Concluding, the Supervisory Council decided to lower the key interest rate by 0.25 percentage points, to 3.75%. This decision aims to create appropriate monetary conditions to meet the medium-term inflation target.

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.