The expansionary monetary policy stance was strengthened by the announcement that the ECB expects official interest rates to remain at or below the new level for a prolonged period. Along with these external factors, the Spanish economy has also benefited from other developments that have helped temper the contractionary pressures on demand and activity during this year. Household spending began 2013 weighed down by the impact of the decline in employment on income from work and by the debt-reduction process. However, as the year unfolded,  BIS central bankers’ speeches  1  improved confidence and the somewhat less unfavourable state of the labour market have meant that private consumption has begun to pick up. Further, according to the available indicators, investment in equipment has posted increases in the first nine months of the year. In a setting in which sluggish domestic demand, ongoing corporate deleveraging and the restrictions on access to financing continue to check investment, this improvement stems, above all, from the strong pace of goods and services exports, which would have led to greater investment activity by exporting firms. Moreover, construction, as a whole, has continued shrinking, owing to the adjustment in residential investment and in public works. General government consumption spending has also carried on falling. As a result, national demand has continued to decline, albeit at a progressively slacker pace. The positive contribution of the external sector to activity has increased in 2013.
In terms of agents, an improvement of 0.3 pp of GDP is considered for social security funds and the regional governments, to 1.1% and 1%, respectively, while central government might post a deficit of 3.7% of GDP, compared with the figure of 3.8% projected for 2013; local government should run a balanced budget. The target for 2014 entails an improvement in the general government structural balance of between 0.1 and 0.3 pp of GDP. Following the considerable adjustment made in the past two years, when the structural deficit was cut by 6 pp of GDP, the budgetary plans for 2014 are more conducive to the entrenchment of the recovery and compliance therewith will help maintain agents’ confidence in fiscal consolidation. On the expenditure side, three budgetary items – namely pensions, unemployment benefits and the burden of interest on public debt – will continue to influence budgetary programming, given that they account for almost 50% of total overall general government spending. The adjustment is centred, in fact, on government consumption, with a projected reduction of 0.4 pp in total spending on general government employee compensation, owing to the wage freeze for civil servants and to the prolongation of the austerity policies governing public-  BIS central bankers’ speeches  3  sector employment; and of 0.3 pp in intermediate consumption, further to the maintenance of the restrictions on goods and services purchases at all levels of government.