Ardian Fullani: Economic developments during the second semester of 2004 and expectations for year 2005 Statement by Mr Ardian Fullani, Governor of the Bank of Albania, Tirana, 28 January 2005. *  *  *  The second part of 2004 has generated a larger economic activity, marking a certain general impulse, especially after a relatively quiet start of the year. The acceleration of production growth is reflected almost in all the economy sectors, while the major objectives of the economy have been achieved in conformity with the overall programme of the country's economic and financial development. At international level, this semester coincided with an acceleration of the confirmed tendencies in the first part of the year, especially with regard to US dollar performance and oil price rise. The Fed monetary policy has changed the monetary policy tendency, during this period, through some successive increases of the core interest rate, in attempting to prevent the inflationary pressures in the economy. On the other side, the European Central Bank, considering the inflation performance and the strong pressure against the Euro has deemed unreasonable to change the core interest rate, keeping it at the level of 2 percent for almost a year and half. Annual inflation in December resulted 2.2 percent, while the average annual inflation was only 2.9 percent. The maintenance of inflation within the targeted range was mainly attributed to the stable macroeconomic situation, the control of domestic demand of the economy and monetary indicators stability.
We already acknowledged the benefits from all specific measures implemented during the crisis, but we should be aware of their transitory role and the need to get back to the standard policy tools. Of course, the signs of current recovery are pointing to different stages of the normalization path and therefore, this reversal in the policy settings will differ from country to country. The new threat of deflation in the advanced economies is yet another potential obstacle in this reversal. From this point, that is already a challenging one, the next big challenge will be to return to a solid and sustainable growth. During this crisis, we experienced a lot and we learnt a lot. A number of weaknesses, mainly in the financial and fiscal areas, have been detected and addressed. Anyway, with the first signs of economic recovery, not everything has been fixed yet. There is still a need to repair banks’ balance sheets, to squeeze central banks’ balance sheets, to restore market confidence and to strengthen public debt management. The prolonged period of low interest rates has created a room for fiscal expansion and public debt increase, but the fiscal authorities must be aware that the end of this period is just about to come. The regulatory and institutional reforms undertaken in the last years should contribute to the soundness and stability of the financial systems. What has been done in this field in the last years should be fruitful on a longer horizon.