On the demand side, economic activity relied mostly on foreign demand and public spending, while private sector contribution was low. Indirect data support the assessment for a weak private consumption performance during 2011 H1. In spite of increased available income and improved bank lending – as indicated by higher employment, real wage and consumer and house-purchase loans – consumer confidence was low. The Albanian consumer continues to be cautious in spending, displaying added saving preference over a number of quarters. Naturally, this behaviour is a structural correction of the consumption model shown over the past years, but the slow performance of consumer spending reflects, also, added uncertainty about the future. While the first component is welcomed, in the context of preserving macro- and micro balances, the second component may and should be corrected: households consumption has the potential to grow and be stimulated in the short and medium run. Taking into account the significant impact of consumption on the GDP, its performance will substantially condition economic growth during this time span. 2  BIS central bankers’ speeches  Private investments increased at moderate pace during 2011 H1 as illustrated by higher loans for investment and imports of capital goods. Although financial terms – availability, liquidity and bank interest rates – are significantly improved, the existence of spare capacities in the economy limits the demand of businesses for investment. In the short run, the position of economic activity operating below its potential conditions a slow performance of investments.

In line with the action time-span, this measure is considered to have been effective in signalising the commitment of the Bank of Albania to comply with its inflation target and keep inflation expectations under control. In addition, it kept unchanged the stimulating characteristic of the monetary policy and conditions as reflected in comparatively low interest rates, banking system ample liquidity and exchange rates favouring Albanian exports. Let me now focus on economic highlights defining the inflation performance as well as their expected development. In line with its past year’s performance, the expansion of the Albanian economy during the first and second quarters of 2011 relied mostly on the industry and services sectors growth. Owing to foreign demand, industrial output increased by 12.3% in annual terms, providing major contribution to the expansion of the economy in the first quarter. The services sector, topped by “Trade, hotels and restaurants”, continued to support economic growth, although less than last year’s quarters. This sector’s annual growth marked 1.8% in the first quarter of 2011. The services sector performance is closely connected to consumer spending performance, which I will address later. After five quarters of contraction, the construction sector posted annual growth of 4.6%, triggered by higher public investments during this period. Lastly, agriculture maintained growth and contribution rates similar to the last quarter of 2010. Indirect data obtained from business surveys and monetary indicators suggest that this performance is and will continue to be along the same lines even during the second quarter and beyond.