Follow Us

Follow us on Twitter  Follow us on LinkedIn
 

19 February 2014

BoS/Linde: Exiting the economic crisis


Speaking in Madrid, Linde looked at the complexity of the current economic juncture and the challenges that must be overcome to ensure that the incipient recovery leads to an increase in Spain's long-term growth capacity.

The incipient recovery in Spain is benefiting from the easing of financial tensions in European markets. In particular, measures by the European Central Bank and the headway made in correcting the weaknesses detected in the governance of the euro, and in creating a Banking Union within the area, have contributed to improving the financing conditions of the Spanish economy. That said, the cost our households and firms still have to pay for their credit remains overly high for the accommodative stance of monetary policy, revealing that it is not yet appropriate to talk about the full normalisation of the single monetary policy transmission process in the euro area.

Undoubtedly, however, domestic impulses are playing a decisive role in improving perceptions of the Spanish economy, and in laying the foundations for a sustained path of recovery. These include most notably the progress in correcting imbalances and in adopting reforms in different areas.

(...)

The most likely outlook for recovery in the coming months involves relatively moderate growth in activity. Foreseeably, domestic demand will continue to gain in weight, albeit moving on a very gradual course of recovery, in line with what is forecast for its attendant determinants. Investment in construction will join this recovery, albeit taking into account its somewhat more negative position at the start of this year, lagging the other domestic demand components. External demand, meanwhile, will maintain its positive contribution to GDP, but with lower contributions than during the crisis years.

Several risk factors cloud this central scenario of recovery. First, the growth outlook for the euro area continues to point to moderate increases in activity in the coming quarters, likewise subject to downside risks. Moreover, further headway in fiscal consolidation will be inevitable, which does not allow expansionary budgetary policies to be applied in the short term. In these circumstances, it is of great importance that any tax reform should prove conducive to economic efficiency and growth.

With regard to private debt, credit may not be expected to recover at the aggregate level until economic growth has done so. Meanwhile, the necessary deleveraging should continue to be compatible with the positive restructuring of credit, as attested to by the latest developments.

In conclusion, I would say that economists and, even more so, those of us who work in the monetary and financial field, tend to focus on the short or very short term. But I would like to close my address with a reflection on the medium and long term.

The twin engines of economic growth are demographic growth and increased productivity. Our worrying population trend responds to complex economic, social and cultural factors that cannot be rapidly changed. But that does not mean that action should not be taken, as far as possible, to improve this trend.

Productivity growth is directly related to capital formation, which is in turn connected to saving. Accordingly, any policy wishing to be effective in enhancing productivity must be underpinned by incentives to save and the lifting of any related institutional obstacles, something which is also connected to the reforms that boost competitiveness and legal certainty. Spain must persist with reform policy geared to these objectives.

Full speech



© BIS - Bank for International Settlements


< Next Previous >
Key
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information



Add new comment