1. Albanian Economy in the Global Economic Background Altin Tanku May 18 th 2012

2. Overview Current Developments –Taking stock of current global developments Economy Financial system Future in a Global World –Own Model of growth –The role of Partners

3. Catching up at any speed GDP per Capita Source World Bank & UNCTAD

4. Inflation Foreign price developments the most likely determinant of inflation

5. Growth depends on consumption, investments and recently exports. Investment depend on government exp. and credit to private sector. GDP Growth

6. GDP sectors

7. Dynamic Economic Forecasts

8. Policy & Market Interest Rates Policy is constrained by the presence of output gap and low GDP and low inflation (no strong demand yet in horizon)

9. Fiscal Developments Fiscal stance is stretched as much as it can, there is less or no room for further fiscal expansion.

10. Foreign Trade Developments Export growth during 2010-2011 represent mainly exports of energy.

11. Current Account

12. The other “Export” Source EUROSTAT & UNCTAD

13. Foreign Direct Investments

14. Exports

15. Imports

16. Free floating exchange rates

17. Banking System

18. Financial Intermediation

19. Sources of Financial Intermediation

20. Non Performing Loans

22. Albania-EU-Global Economy Albania model of growth –Internal Market Factors Factor redistribution »early transition period Absorption lead model »period leading to the crisis –Export lead strategies Cheap labor? Lots of FDI exclusively from EU? “Close” partners in geography and other dimensions? New relatively large markets? Moving up the value chain?

23. Global trends & Theory of International Trade “ Over the past three decades hundred of millions of workers have entered the global economy… and over time they have generally gained in terms of human capital and in terms of value added and income. … but these new workers have brought more employment competition and significant shifts in relative wages and prices, which is having profound distributional effects.” Spence, M., 2011

24. Albania-EU-Global Economy One global market, one global factor, one global price. Deal with it …but how … Challenge: remain part of the global market. –Reduce dependence on single traditional partners –Hope that the anchor is still there –Define relevance of the SEE term Must know for the future Understand the nature and value of wealth It is all part of an endogenous system There is potential for regime change

25. Global Economy & Albania –The wealthiest “nation” is the “leading anchor” –What will define wealth in the next 50 years –Potential for growth »minerals, agriculture, trade related services and infrastructure –It is all part of an endogenous system –EU developments can not go unnoticed in the global economy. –Global developments can not be treated as exogenous and unrelated with developments of Albania and/or its main partner. –There is potential for regime change –Literature on the negative effects of globalization is growing in size and topics. –Globalization or technological change or both have constrained driving forces of the system opening gaps that might tiger error correcting mechanisms. »Structural breaks vs. temporary drifting »Where is the error correcting mechanism located in the system.