the main drivers of this sector, whereas most of other branches of the services sector contracted, year on year. likewise, the industry sector shrank by 8. 5 % in the second quarter, after its positive performance in the last six quarters. industry sector deceleration during this quarter was largely influenced by slashed output in “ energy, water and gas ”, whereas extraction and processing industry continued their upward value - added. after its surge in the first quarter of 2011, the construction sector contracted again in the second quarter, posting annualised downgrade of 1. 7 %. as regards aggregate demand, during the first half of the year, economic growth was supported mainly by the public sector and foreign demand contributions, whereas internal demand was lacklustre. available data suggest that private consumption and investments were sluggish during the first half of the year, thus conditioning the below - potential growth of the economy during this period. private consumption continues to reflect consumers ’ reluctance to spend and their inclination to save. domestic consumption has not totally reflected higher available income generated by higher wages and employment rates, or expansion of funding resources, in the form of consumer loan growth during 2011. in particular, remittances shortfall during the first nine months of the year may have lessened consumption for a part of albanian households. in addition, relatively high import prices, which burdened albanian households ’ budget in the first half of the year, may have impacted consumption negatively. against this performance of consumption during the first half, improved balances for large purchases – as suggested by the consumer confidence survey – and more consumer loans granted during the second half, suggest for higher consumption in the third and fourth quarters of 2011. subdued consumer spending and presence of spare capacities in the economy dampened businesses ’ demand for new investments. in parallel, higher lending prudence by banks may have discouraged, in part, the demand for investment loans. foreign direct investments were down during the first quarter of the year. higher capital expenditures in the last quarter are expected to generate higher contribution of this bis central bankers ’ speeches component to aggregate demand at year - end. in the mean time, improved lending terms in 2012 are expected to be translated into higher support for the system with investment loans and higher contribution to economic growth by this component of aggregate demand. fiscal policy was stimulating in 2011, materialised in positive contribution of public spending to aggregate demand. public spending and budget deficit growth rates moderated after the first quarter, settled at low levels in the second

, in turn, conditions spending and investments in the economy. on the other hand, credit supply is tight, as lending standards performance shows. financial markets during the second half of 2011 were calm and reflected relatively downward premiums on liquidity risk and inflation. successive key rate cuts were swiftly reflected in the interbank market. in the primary market, government security yields dropped, reflecting the key interest rate cut as well as the low demand of the public sector for loans. moreover, transmission of monetary policy signals is expected to be extended fully to the deposits and loans market, in accordance with the transmission mechanism time lags. the bank of albania deems that a good part of above - analysed tendencies would be present during 2012, as well. according to our core projections, the albanian economy will continue to grow during the year ahead, albeit below its potential. the country ’ s economic activity will be conditioned by the solution of the crisis in the euro - area countries, economic growth of partner countries, and foreign investor ’ s attitude to risk. bis central bankers ’ speeches on the other hand, economic challenges in our partner countries may be transformed into positive opportunities for the albanian economy. albanian economy attractiveness with low unit labour costs, macroeconomic stability and financial soundness of businesses, households and the banking system may be reflected in more foreign direct investments. while our projections factorize lower foreign demand contribution, in baseline scenarios, the widening of albanian exports market remains a potential scenario, as well. economic growth projections presume positive consumption and investments growth at home, in response to improvement of lending terms. the latter are expected to reflect the eased monetary policy of the bank of albania and reduced risk premiums in the financial system. moreover, reduction of room for fiscal stimulus and maintaining of stable fiscal parameters will enable the private sector to create spare funds and cut down risk premiums for the economy. factorising our expectations for below - potential economic growth and lower imported inflation, as well as in the presence of the economy ’ s expectations on inflation around the target, our projections suggest that, with 90 % probability, consumer price inflation will range 1 – 3 % during 2012. * * * taking into consideration the information set out above, in the supervisory council assessment, inflationary pressures remain controlled over the monetary policy relevant horizon. moreover, economic agents ’ expectations on inflation remain anchored to the bank of albania ’ s target band. at the conclusion of discussions, the supervisory council decided to cut the key interest rate by 0