As noted on previous occasions, this partly reflects intensive growth in employment generation, which has  6  BIS Review 45/2005  been most beneficial for entrenching the expansionary cycle of the economy and making more efficient use of the labour supply available. But weak total factor productivity growth - the relative position of which vis-à-vis the EU has continued to worsen - denotes the presence of other more worrying factors which appear to be checking the incorporation of innovations and technical progress into productive processes. The lack of innovation in the productive system tends to stifle the economy’s overall efficiency and its long-term growth capacity. The indicators available for the stock of technological capital suggest a considerable lag remains in place. Undoubtedly, specific features of the Spanish economy’s pattern of productive specialisation - which is very biased in manufacturing towards the production of intermediate- and low-technology goods, and in services towards tourism activities - may partly explain this phenomenon. But there are also shortcomings that are restricting the business sector’s capacity to incorporate advances in knowledge and to adapt productive processes, human resources management and corporate strategies to an environment of heightened competition. Of particular importance are the persistent mismatches between the skills and training levels of labour and companies’ requirements, and, above all, the rigidities in the workings of factor and product markets, which discourage the adoption of more innovative strategies.
These weaknesses make it necessary to design specific policies to address this objective and to adapt the institutional and regulatory framework so that the smooth functioning of the markets will drive the innovation and development of new activities that will focus the productive structure on sectors in which demand and value added are greater. As a result of the launch of the new Plan to achieve a dynamic economy and to foster productivity, certain measures were adopted to promote competitiveness (of a sectoral nature), which will unquestionably play a part in improving productivity. The Banco de España particularly welcomes those measures addressing the financial system. However, what is most important is that this Plan should clearly steer reform policy priorities in the right direction and maintain the momentum of reform. The commitments announced must be implemented ambitiously and complement other actions aimed at fostering improvements in human and technological capital and in the workings of markets and institutions. This is not the appropriate setting for a detailed and exhaustive review of the range of measures and reforms required by the Spanish economy. I have referred only to some of the most necessary ones, but this list would be incomplete if I did not mention steps to mitigate the potential effects of household indebtedness and of house price rises on the sustainability of growth.