In particular, the intensity of the expansionary effects of the sizable decline in interest rates and the rise in property values will foreseeably diminish, both these factors, along with employment, having been underpinned by the buoyancy of household expenditure. Moreover, the fact that in the past households expanded their spending and reduced their saving (simultaneously increasing their debt, as I shall discuss later) means more moderate behaviour is to be expected -and desirable- in the future, geared to a restructuring of their saving ratio. Indeed, this began to be seen already in 2002. As regards gross capital formation, investment in infrastructure has had a key part in enlarging the economy’s productive capital stock. But it cannot play this leading role indefinitely. Consequently, it is particularly important that the flatness of business investment and, especially, of spending on capital goods in recent years, which has hampered productivity gains and the incorporation of technological innovations, should be put behind. In principle, the current high ordinary returns accruing to companies coupled with low financial costs are propitious to investment regaining buoyancy, as expectations progressively clear. On the prices front, certain temporary factors, such as the physical introduction of the euro and dearer oil, fuelled increases in domestic prices, against the background of relatively sustained growth in consumer demand. This prompted a rise in the inflation rate, which stood at end-2002 at 4%. This increase in inflation has been partly reversed, thanks to the improvement in recent months which has seen this rate cut by around one percentage point.
Changes in the population pyramid, increased immigration, the growth of the demand for second homes by residents and nonresidents and, above all, the continuous growth of income and the pronounced fall in interest rates are factors that help explain the trend growth of the relative price of housing in Spain. In addition, the unfavourable course of stock market prices in the last three years has enhanced the attractiveness of alternative investment opportunities, such as those offered by real estate. Yet in a market such as that for property which, by its very nature, sees supply adjust relatively slowly, demand pressures such as those arising from the aforementioned factors may cause excessive price reactions that tend to be corrected subsequently. This appears to be the situation currently in our country where, even with a significant rise in the rate at which houses are built, property values may have exceeded the levels consistent with the trajectory of their determinants. In such a situation, it is likely -and desirable- that house-price growth rates will be brought back progressively and in an orderly fashion to levels more in line with their fundamentals. This process, which should run parallel to gradual moderation in the resort to credit financing by the households and companies most directly involved in the real estate business, would prevent house prices from moving too far away from their equilibrium value.