The world economy is in an era of high uncertainty that challenges central banks and policymakers. Simultaneous geopolitical, economic, technological and climate shocks are creating an extremely unpredictable environment for economic policymaking. Economic shocks and crises risk increasing inflation, unemployment and poverty. This scares politicians, who begin to attack the real independence of central banks.
President Trump publicly pressured US Federal Reserve (FED) Chairman Powell to cut interest rates as soon as possible. French President Macron urged European Central Bank (ECB) President Lagarde to change the ECB’s charter to include not only an inflation target but also a focus on boosting employment. Powell did not bow to President Trump’s public pressure. ECB President Lagarde rejected President Macron’s idea, arguing that the ECB alone could not solve the problem of missing and inconsistent structural reforms across EU countries.
These are classic examples of the debate over central bank independence and the unsettling of monetary policy priorities: price stabilization vs. growth/employment. Central banks can enhance their positive contribution by increasing their ability to prevent the negative effects of global crises. In this new reality, central banks cannot rely solely on traditional models. Early warnings require the use of alternative data, such as digital payments and online trade prices, and other economic and social indicators.
Understanding and proactively managing global uncertainties is now as essential as setting the benchmark interest rate. Escalating geopolitical conflicts, such as the war in Ukraine and new tensions in the Middle East, have hit energy prices, supply chains and economic security. Hybrid warfare, such as cyberattacks, is destabilizing market expectations.
Inflation, although it has fallen from record levels, remains volatile and persistent, especially in the services sector and in labour markets where wages are growing faster than productivity. This inflationary dynamic is difficult to contain with classical monetary instruments alone. For example, in the long term, full integration of the Single Market, including services, increases EU GDP by an additional 2-3 percentage points. The Capital Markets Union (CMU) has the potential to mobilise €470 billion to €740 billion in additional funds to finance the green and digital transition. However, the reallocation of strategic investments (reshoring/nearshoring) and technological divides are creating competitive blocs, raising production costs and exerting long-term inflationary and structural pressures.
Climate crises are becoming more severe, causing huge economic losses that harm growth and financial stability. The energy transition requires massive investments, increasing medium-term fiscal pressures. Technological risks are compounded by the speed of developments in Artificial Intelligence (AI), which has increased uncertainties in labor markets and the financial sector. These uncertainties are measurable and reflected in three international indicators such as: Global Peace Index (GPI 2025) Albania ranks 52nd, marking a slight deterioration. The Global Economic Uncertainty Index (WUI) shows that global uncertainty in 2025 is 2.5 times higher than the pre-pandemic average.
For Albania, the WUI remains higher than the world average, driven by import dependence, political and fiscal uncertainty, and exchange rate fluctuations. The Geopolitical Uncertainty Index (GPR Index) has reached levels comparable to those recorded during the Iraq war, increasing risk premia and financing costs. For the Western Balkans, the Financial Stress Index is moderate, but with an upward trend due to the cost of capital and exposure to foreign currencies. Multiple uncertainties create some fundamental risks for the Albanian economy as well. Crises cause risk premia to increase, with investors seeking higher returns, thus increasing the costs of public and private debt. Albania, with a still considerable public debt, is particularly exposed. Inflation of services and wages remains high and difficult to reduce with interest rates alone.
As a partially euroized and import-dependent economy, Albania faces serious risks to its trade balance. The risk of structural unemployment is high, with AI and automation threatening low-skilled sectors, further fueling emigration. The overreliance on tourism makes the economy vulnerable to natural disasters and regional conflicts. In this context, the response of Central Banks and the main recommendations of the IMF and ECB call for a multi-dimensional strategy. Extreme flexibility in interest rates is recommended, warning that rapid rate cuts should be avoided, as stability of expectations is more important than hasty easing.
The need for high foreign exchange reserves and emergency liquidity instruments remains a potential risk. Strengthening macroprudential policies is required, including increasing capital buffers and limiting risky loans, especially in real estate. A key element is coordination with fiscal policy; the IMF clearly emphasized that governments should maintain fiscal discipline, avoid tax incentives; protect only the needy, reducing inflationary pressure from public spending. To increase the preventive effect of multidimensional crises.
For the Bank of Albania and the Government, the latest IMF mission highlighted specific assessments and warnings: although well capitalized, risks in the banking system remain. CBs face increased real estate loans, foreign exchange risk and sovereign debt exposure. The IMF positively assesses the membership in SEPA, the activation of borrower-based measures for new real estate loans, but at the same time requests a review of the facilities provided in the capital requirements for loans supporting strategic infrastructure, as they do not comply with international standards.
Fiscal risks are serious; the stability of public finances is threatened by rising spending, including the increase in the pension scheme deficit and the lack of tax reforms. Without deep reforms, fiscal space will narrow significantly, jeopardizing the sustainability of public finances. For our country, the slow growth of productivity remains a concern. The economy is mainly based on tourism and consumption, which do not guarantee long-term growth without investments in innovation, R&D and the strengthening of technical and digital capacities. In this reality of multiple uncertainties, Albania must take coordinated and rapid actions: diversify the economy towards more productive sectors. Gradually increase foreign exchange reserves. Strengthen supervision and prudential instruments; maintain fiscal discipline and reform the income system and invest in human capital, education and innovation. Economic stability in such a world is not an easily achievable destination, but an ongoing process that requires clear vision and policies that build resilience in an increasingly unpredictable era. /The author has been a member of the Supervisory Council of the Bank of Albania/Gazeta “Panorama”/