After recovering in the last quarter of 2011, private consumption slowed down in the first quarter of 2012. The performance of imports of consumer goods and the low annual growth of VAT revenues suggest sluggish consumer demand over the quarter under review. This assessment is also supported by qualitative data obtained from consumer, business and banking sector surveys. The dynamic of quantitative and qualitative indicators also suggests a sluggish performance of investment. BIS central bankers’ speeches  1  Against a background of low demand and spare production capacities, and in the presence of uncertainties for the developments at home and abroad, businesses have postponed their new investment-related decisions. In addition, the contribution of public investment to aggregate demand growth was negative in the first quarter of 2012. The Government pursued a prudent fiscal policy in the first four months of the present year, translated into the annual reduction of the budget deficit by 28% during this period. Budget revenues continue to record moderate annual growth rates, reflecting the performance of economic activity and providing evidence for the mutual impact between the public and private sector dynamics. The Bank of Albania, however, points out that pursuing a fiscal policy oriented toward the long-term sustainability of budget and public debt figures will provide clear medium- and long-term benefits to the Albanian economy, in the form of lower risk premiums, greater room for private sector financing and, ultimately, lower financing costs. This policy is also in line with the developments in domestic and foreign financial markets.

It reflects, to a large extent, the gradually subsiding supply-side shocks on inflation. The decelerated rise in primary commodity prices in the global markets, the low inflation in Albania’s trading partners and the stable exchange rate have generated reduced imported inflation rates. However, despite increasing, inflation remains low due to the incomplete utilisation of capacities in the economy, which is reflected in weak pressures on the rise of wages and producer prices. At the same time, economic agents’ inflation expectations are low and growth of money is in line with the demand of the economy for money. In addition, the absent rise in regulated prices has contributed to the low inflation rate over 2012. While making an analysis of the economic developments, the Supervisory Council noted that the reappearance of stress in the global financial markets in the current month has heightened the uncertainties in these markets markedly, being translated into more strained financing conditions for the public and private sector. The fall of foreign demand and the higher perceived risk for the entire area have started to affect the performance of economic activity in the countries of the region. The statistical information available for the first quarter of 2012 provides evidence for a sluggish economic activity. This performance, among others, has been also affected by temporary factors arising from the severe weather conditions. However, the analysis of available indicators reaches the conclusion that both domestic and foreign demand remain sluggish.