As we have already stated, consumption and investments continue to suffer from low confidence and tight lending terms. Fiscal policy is faced with a high public debt level, which has limited the possibilities for macroeconomic stimulus. On the other hand, the external environment was characterised by ongoing euro-area problems, hence limiting our export growth and making financial markets pursue conservative policies in terms of lending to developing economies. However, 2013 saw positive developments. Financial markets were characterised by improved liquidity and downward interest rates, in response to Bank of Albania's easing monetary policy. Also, introducing new financial agents and instruments has further deepened these markets. The banking system remains solid and well- capitalised, regardless of increase in non-performing loans. The current account deficit has dropped, creating better premises for a sustainable external position of the economy and stable exchange rate. These developments have contributed to maintaining macroeconomic stability. Analysing the specific developments in the second half of 2013, the official data show a slowing economic activity and a sustained downtrend in inflation. Average annual inflation reached 1.5% in the fourth quarter, remaining unchanged from the third quarter. In December, inflation rate edged up to 1.9%, almost entirely due to higher prices of foods, particularly unprocessed foods. Prices of other CPI basket items were generally stable and affected slightly on inflation. From the macroeconomic viewpoint, the low inflation rate was determined by the sluggish aggregate demand, lower imported inflation and subdued inflation trends.

Third-quarter gross domestic product dropped 2.3%, driven heavily by short-term shocks arising from full fiscal stimulus withdrawal and post-election uncertainties, which impacted  BIS central bankers’ speeches  1  negatively on consumption, investments and tourism over this period. Excluding agriculture, the other sectors of the economy dropped, in annual terms. All the aggregate demand components performed poorly over the second half of the year. Private consumption was at low levels, reflecting the low consumer confidence and the decelerated income growth. The low inflation rates contributed to maintaining the savings value. However, Albanian households continue to show a cautious behaviour toward consumption. Also, private investments deepened the downtrend in the second half of the year. The performance of this component has reflected the lower final demand, the boosted uncertainty and the tight bank lending terms. Periodic surveys report that the financial position of businesses remains difficult and this restrains their ability to invest. Fiscal policy was stimulating in 2013, mainly concentrated in the first half of the year. The fiscal stimulus is carried out by increasing spending and reducing taxes. The latest fiscal data are as of November 2013. During the first 11 months of the year, the budget deficit increased 71.5% in annual terms, budget spending increased 4.7%, while fiscal revenues dropped 3.1%. The revenue drop was due to easing tax policy and poor economic performance. Fiscal developments in 2013 worsened the public debt dynamics.