It is likewise important to recall that the impact of population ageing is not confined to public finances, since it also bears down on the participation rate, productivity and the economy’s potential growth; hence, tackling this phenomenon calls for a broad-brush approach, regarding both the time period envisaged and the set of instruments that should be used. In this respect, the outlook for the Spanish economy’s long-term potential growth is relatively modest (see Chart 13). Specifically, on the latest available estimates, which are naturally subject to some degree of uncertainty, our economy’s potential growth rate is expected to fall from close to 3% per annum in 2008 to post-crisis levels slightly below 1.5%. This level, though close to that of the euro area, is below that estimated for the most dynamic developed economies. Among the key structural factors constraining this growth are the aforementioned population ageing, high structural unemployment and lacklustre productivity. Indeed, despite the swift pace of job creation in recent years, unemployment remains very high, especially among certain groups, such as the lesser-skilled, whose unemployment rate is over 25% (see Chart 14). The difficulties some groups face in finding work means that, according to figures for the third quarter of 2018, practically half the unemployed have been in this situation for over a year. Of particular importance here is improving the quality of employment, which is affected by the high involuntary part-time status and short duration of employment contracts. Such marked segmentation of the labour market hampers, moreover, productivity gains.

This current low profitability is concentrated in banks’ business in Spain, although their activity abroad, which provided them with a valuable source of risk diversification during the crisis, is not plain sailing, particularly at present when some of the economies to which Spanish banks are exposed (such as Turkey and Argentina) are going through notable difficulties. In any event, as they deal with the low profitability of their domestic business, Spanish banks will have to guard against overly relaxing their loan approval and selection criteria. The third challenge facing the banking sector is that associated with the process of adapting to a more stringent regulatory framework with higher own funds and liquid assets requirements and other additional requirements derived from the new resolution regulations. Spanish banks have already largely adapted to the new requirements, and their liquidity and solvency ratios stand above the minimum requirements, although as can be seen in Chart 19 their CET1 capital ratios are low compared with those of the other euro area banking systems, underscoring the need for banks to strengthen their capital levels. It should be noted that although most of the regulatory changes have already taken place, some reforms 11/14  have yet to be applied in full, such as the Basel III review and the MREL requirements, which will involve further adaptation by banks. Lastly, the main future challenge facing Spanish credit institutions relates to the new competition framework stemming from the emergence of new technologies and growing financial disintermediation.