on the more specific issue of brexit, the direct exposure of the philippines to the uk is relatively limited. the bigger concern, however, is whether the other eu economies will follow the uk ’ s lead ; given that our trade exposure to the eu is larger at around 12pct. as for the trump election, we will need to see how his campaign rhetoric translates to actual policy. our eyes and ears are tuned to january 20, when he actually takes over the white house. the second risk comes from the us fed ’ s future policy rate actions. at its meeting in december 2016, when the fed raised its target rate for the first time for the year, the fed indicated that it would raise rates three more times in 2017. if the fed veers from this, volatility in both the global and domestic fx and fixed income markets could rise. a steeper than expected hike in us interest rates could lead to a faster rise in domestic commercial and government securities interest rates also, as well as stronger depreciation pressures on eme currencies, including the peso. such price movements may adversely affect the balance sheets of domestic corporates and banks, especially of those that have fx and floating - interest rate obligations. this adverse result would be magnified if the markets panic, overreact, and thus amplify the initial increases in interest rates and weakness of the peso. moreover, a tightening in domestic financial market conditions could also dampen domestic credit activities in the near - term. however, if the reason for fed tightness is that the underlying us economic growth has become stronger, then that may offset some of the near - term negative impact of the fed tightening and lead to over - all support for global growth in the medium - term. on the other hand, if the fed turns dovish ( i. e., fewer or no further hikes in 2017 ), then that could encourage “ risk on ” market behavior, stall domestic interest rate increases and dampen depreciation pressures in emerging markets. but such result is unlikely, as trumponomics, which is reported to focus on increased fiscal spending, is widely expected to be inflationary. third. in addition to these external risks, we also have risks emanating from the domestic front such as political noise and adverse weather disturbances. moreover, while the administration has committed to ramp infrastructure spending, they could be forced to cut back on this, should 2 / 4 bis central bankers '

the first seven months of the year, being characterised by rapid increase of public expenditure and direct or indirect reduction in some of the taxes. during this period, budget expenditure surged 10. 4 %, whereas budget revenues fell 2. 6 %. this situation was reflected in the budget deficit being 2. 3 times higher than in the same period a year earlier. the deficit expansion supported the aggregate demand in this period ; however, it implies the implementation of a prudent fiscal policy for the rest of the year, under the conditions that space for borrowing in the second half of the year is exhausted. the easing monetary policy, lower demand for borrowing by the public sector, and good liquidity situation in the banking sector have contributed to further cutting of interest rates in july and august. in particular, the interest rate cut was more noticeable on government securities and deposits in lek and less on loans in lek. this development continues to point to bis central bankers ’ speeches the presence of relatively high risk premia in the financial market and illustrates also the conservative lending policies applied by banks. similarly to the experience of many other economies, it reveals that the complete transmission of the eased monetary policy to better lending terms for the private sector remains problematic. on the other hand, the private sector demonstrates elastic demand against the relatively low credit cost, hence dampening the transmission of the monetary stimulus to the economy. under these circumstances, credit expansion to the economy continued to mark low growth rates. as at the end of the second quarter, credit to the economy stood 0. 9 % higher than in the same period a year earlier. in addition to the weak economic activity, the economic agents ’ perception of uncertainty continues to slacken the private sector ’ s demand for credit. nonetheless, in june, the private sector credit recovered slightly, compared to the previous two months. as at end - june, the m3 aggregate was up 4. 5 %, in annual terms. looking ahead, the bank of albania deems that the drivers of economic growth remain weak and uncertain. in particular, private investment and consumption suffer from uncertainties and reluctance of households and business to undertake long - term commitments. furthermore, lending terms, both at home and abroad, remain relatively tight, hence discouraging credit and investment. the performance of these components will determine the economic outlook in the future. in a medium - term horizon, the baseline scenario of expected developments is characterised by weak and below - potential economic growth – in line with the one noted over