The moderation of labour costs, which fell again in real terms in 2003, and the greater flexibility of hiring arrangements as a result, inter alia, of the successive reforms introduced, were the factors behind the improved working of the labour market as from the late nineties which has led to a high capacity for employment generation. The improvement has proved to be a firm support for the sound performance of the economy, as it has enabled labour supply to increase, allowing a flexible response to increasing demand. Al the same time, the increase in employment has boosted household income expectations, which has helped sustain domestic demand. The composition of the Spanish economy’s growth has continued to be essentially underpinned by household consumption and construction. The improvement in the determinants of private consumption, which accelerated in 2003, was also assisted by the easing of the inflation rate last year. That made for an increase in the purchasing power of disposable income. Residential investment, despite the strong increase in the relative price of housing, continued to rise at a high rate. And this, combined with notable growth in public infrastructure works, fuelled the sustained increase in construction. Investment in equipment and exports of goods and services also recovered in 2003, but their contribution to GDP growth was still modest. Indeed, it was these components which kept the pace of recovery moderate. Investment in equipment increased by 1.9%, leaving behind the heavy contraction of 2002.
Fifth, central banks and regulatory authorities in most emerging economies in Asia have the broader mandate that includes a focus on the development of the financial sector as a means not only to enhance the growth and development potential, but also to reinforce a strong foundation for financial stability. In Malaysia, the development and reform of the financial sector in the decade that followed the Asian financial crisis has not only developed the financial sector to better serve the Malaysian economy, but it has also better positioned financial institutions to withstand the destabilising episodes emanating from external shocks. This has included strengthening financial intermediaries, not only in terms of scale but also in their financial positions, risk management and governance practices. This has contributed to more efficient financial intermediation while improving access to financing, particularly for small and medium scale businesses. Efforts to develop a vibrant capital market have meanwhile opened up alternative channels for financing, while mitigating concentration risk in the financial system and enhancing its ability to absorb large and volatile cross-border capital flows. These factors will place Asia on a firm foundation to achieve its growth and development goals. While public policy clearly has an important role, it is as important for the financial industry to align itself with the desired outcomes of sustainable growth within a longer term horizon.