Comparing the present situation with that a year ago, there has evidently been notable progress in restoring confidence in the Spanish economy. The growing normalisation of external funding flows and the fall in the sovereign risk premium clearly illustrate this. However, the pass-through of this improvement in overall financing conditions is still proving limited, whereby the financial restrictions continue to weigh down most significantly on private-sector spending and investment decisions in Spain. All told, the slowing trend in inflation has continued over recent quarters and further headway has been made in correcting the main imbalances. The increases in the annual rate of the consumer price index in the first half of this year have slackened as the effects of the tax rises and increases in administered prices from July to September last year have been stripped out. According to the flash estimate, the CPI rate stood at 0.3% in September. It is therefore likely that its annual rate of change will stand below 1% in December. Running such a moderate inflation rate evidently contributes to alleviating the impact of weak incomes on households’ and firms’ purchasing capacity. The legislation on the deindexation of the economy will be a valuable instrument for entrenching this trajectory. But the clearest example of the marked re-balancing the Spanish economy is undergoing is the elimination of the external deficit.
The signs of improvement in the sector are not free from risks. In a setting characterised by low economic growth, sluggish activity and relatively low interest rates, banking sector margins will continue to be subject to downward pressures. Foreseeably, moreover, doubtful assets will continue to increase in the short run, although their impact in terms of provisions will be less than in the recent past. Against this background, banks must persevere in their efforts to improve efficiency and contain operating costs. In particular, it is essential that banks subject to restructuring and recapitalisation plans strictly comply with the requirements established in those plans. Conclusions The difficulties the Spanish economy has been facing call for efforts to be made by all. The Budget you are to discuss is pivotal to the continuation of these efforts and to an exit from the crisis. The analysis I have attempted to convey seeks to show that these efforts are beginning to bear fruit in the gradual strengthening of the recovery. I believe if we manage to maintain the policy of expenditure control, structural reforms and the reinforcement of our financial system, the year 2014 may mark the start of the recovery in activity and employment. Thank you for your attention. BIS central bankers’ speeches  7