Tremonti: Fiscal stimuli, exports keep Albanian economy growing

Consumption and investments have remained sluggish, reflecting the high uncertainty and a more prudent behavior from households, said the Italian Economy Minister in his address at the IMF By Giulio Tremonti The Albanian economy grew by an annual rate of 3.4 percent during the first quarter of 2011, while preserving macroeconomic stability and taking measures to further strengthen financial stability. To a large extent, these trends have continued through the second and third quarter. This performance was achieved in spite of negative terms of trade developments, high volatility in global financial markets, increased uncertainty in its main trading partners, and supply-side inflationary pressures. The economic expansion was supported by fiscal stimuli and continued growth in Albanian exports during the first two quarters. Consumption and investments have remained sluggish, reflecting the high uncertainty and a more prudent behavior from households. Macroeconomic policies have been cautiously stimulating the domestic economy, while trying to contain external and internal imbalances as well as anchoring inflation expectations. The CPI inflation jumped above its target during Q1, owing to high prices in the international commodities markets. However, contained domestic inflationary pressures as well as the Bank of Albania’s swift tightening of monetary policy put headline inflation on a declining path, toward the 3 percent targeted level. The external demand carried its positive momentum of 2010 onto the first quarter of 2011. However, the current account deficit was valued at 11.7 percent of GDP, indicating only a slight annual decrease. This external position reflects, to a large extent, higher import prices and low price-elasticity for imported goods. Public expenditures added to aggregate demand growth, after a negative contribution in 2010. They were in turn financed by a moderate jump in budget deficit, which nevertheless remains in line with initial projections. Further corrective measures were undertaken in the July revision of the budget, ensuring expenditure compliance with revenue projections and budget deficit targets. Public debt increased to 59.2 percent of GDP, but remains below the 60 percent ceiling. The banking system has remained well-capitalized, highly liquid, profitable, and capable of meeting any surge in credit demand. Moderate credit demand has contributed to stable monetary expansion. Credit standards have eased slightly during 2011, but increased risk aversion and lower demand from consumers and businesses have contributed to a moderate growth of 11 percent of credit to the private sector. The Albanian economic outlook remains positive for the second part of the year. Aggregate demand is expected to become less reliant on the public sector and external demand, whilst the private sector is expected to increase its overall contribution. Nevertheless, economic growth is projected to be unable to eliminate the prevailing output gap. Spare capacities in the capital and labor markets are expected to persist generating controlled inflationary pressures in the medium term. (Statement by Giulio Tremonti, Italy’s Minister of Economy and Finance, and Governor of the IMF for Italy Speaking on behalf of Albania, Greece, Italy, Malta, Portugal, San Marino, and Timor-Leste at the International Monetary and Financial Committee Washington DC, September 24, 2011)