There are still highly profitable sectors and businesses with plenty of scope for expansion, so firms have to be able to refocus their activity flexibly and to set up new companies without hindrances in a framework of competition. Moreover, the cyclical weakness will require firms to follow a moderate pricing policy and reduce mark-ups, which would be easier to achieve if competitive pressure were to increase in the sectors where it is weakest. Second, faced with the inevitable fall in domestic demand, firms have no alternative but to turn to foreign markets. It is important to realise that, compared with the foreseeably low growth of national demand in the next few quarters, Spain’s export markets may grow at relatively high rates in the coming years. In 2008 Q2, for example, national demand grew by 1.4% in year-on-year terms, while goods and services exports rose by nearly three times that figure. For this reason, efforts to boost the internationalisation of Spanish firms must be maintained. Compared with the 46 million people comprising the Spanish market, the inhabitants of the euro area countries number 320 million and the European single market consists of nearly 500 million. Note that Spain’s share of goods exports in world trade is still below its share of world production. Also, Spain sends a smaller fraction of its exports to the emerging economies (whose imports are more dynamic) than the other EU countries.
For all these reasons, it is clear that there is no room for complacency and that institutions must act to achieve tighter cost control and to rationalise their procedures. Against a background of rising doubtful assets it seems essential to build up both the amount and quality of capital and to establish sound risk control mechanisms. Lastly, institutions should continuously carry out stress testing and develop contingency plans to anticipate what line of action to take in the face of different market situations. Regarding the supervisor, I believe there has been widespread recognition of the reliability and quality of Spanish banking supervision. Therefore this work should continue to cultivate a close relationship and permanent contact with institutions, but without relaxing the demands made of them. The last agent to which I wish to devote attention is households. In the current circumstances it is inevitable that households should regard the future with greater uncertainty and restrict their spending, stepping up their saving and reducing their level of indebtedness. The behaviour of households will be influenced by whether or not they are indebted and, if so, the weight of this debt burden on their current income. In the case of the more heavily indebted households (in proportion to income), the picture is more complicated since, to the prevailing uncertainty about the economic outlook may be added the tightening of financing conditions, which is largely a result of the financial turmoil.