Trade deficit in the second quarter was 20% higher compared to a year earlier. Our exports shrank by about 2.8% year-on-year for this period, a reflection of reduced exporting of energy, which is a volatile component in exports. Despite this development, the core basis of exports continues to maintain more sustainable growth rates. On the other hand, imports continued their annual growth, albeit at a lower rate compared to the first quarter of the year. Aggregate demand performance triggered economic activity growth but was inadequate to fully utilise Albania’s output capacities. Developments in the labour market seem sluggish and do not have premises for emergence of stable inflationary pressures. Signals from economic information are confirmed also by the monetary indicator analysis. In June, annual growth of M3 aggregate was 11.8%, around average rates of the past 12 months. Our assessments show that the expansion of monetary supply is in line with the performance of the economy’s demand for monetary assets. In June and throughout the second quarter, the public sector demand for funding was high, in line with the intensity of the fiscal activity during that period of the year. Furthermore, the private sector demand for funding continued to be moderate. Lending to private sector posted annual growth of 11.6% in June, in line with the second quarter’s performance. Financial markets are characterised by a serene environment with contained risk premia. Interbank market experienced increased trade volume; interest rates were close to the key rate and had low volatility.
On the other hand, regulatedprice goods and non-food goods had a low and downward contribution to this month’s inflation. In line with Bank of Albania’s expectation, controlled inflationary pressures by the domestic economy, as well as anchored inflation expectations created a favourable environment for a rapid reduction of imported inflation effects. Consumer prices during 2011 were mainly affected by supply shocks, materialised in higher prices of imported goods and some products subject to excise, or with regulated prices. These effects appeared to be more moderate in July; in the absence of sudden shocks, they are expected to decrease further in the months ahead. Below-potential economic growth continued to generate controlled inflationary pressures on the demand side. Hence, core inflation stopped increasing and is set around the Bank of Albania’s target of 3%. Moreover, stabilisation of inflation expectations of economic agents and the prudent policy of the Bank of Albania regarding their anchoring are reflected in moderated second-round effects on inflation. (Following, I will describe in more detail economic highlights defining the inflation performance and their expected development.) Although in an unfavourable external environment characterised by added uncertainties in our trade partners, the Albanian economy continued to grow during the second quarter of 2011. In the absence of direct data, the Bank of Albania deems that economic growth during this period is similar to the one recorded in the preceding quarter, thus remaining below Albania’s potential growth rate.