In particular, the employment growth rate has reached levels unknown since the start of the decade, and this has been duly reflected in the indicators of consumer confidence. Overall, the information available suggests the expansionary phase of euro area output will continue over the coming quarters, though possibly at a somewhat lower rate than in the first half of 2006. In any event, around the turn of the year the economic situation will foreseeably be perturbed by the temporary impact of the rise in the main VAT rate in Germany in early 2007. Against this background, medium-term risks of a growth downswing cannot be ruled out if the slowdown in the US economy becomes more intense. Adding to this uncertainty is the possibility that oil prices will resume the upward course interrupted in August and, over a longer horizon, that there will be a disorderly correction of the macro-financial imbalances between the main world areas. The most recent changes in the growth rate of the harmonised index of consumer prices have been much assisted by the marked decline in oil prices since mid-August and by the stripping out of the base effects from the previous year. These factors have meant that, for the first time since early 2005, inflation has stood below 2%, the ECB target (it stood in fact at 1.6% in October). Beyond the temporary variations in this variable, the index that excludes energy goods prices has also performed  BIS Review 117/2006  1  more favourably throughout the year.

True, various factors will tend to diminish revenue in 2007, such as the entry into force of the personal and corporate income tax reform, the new EU financial perspectives and certain aspects of the labour market reform applied last July. But if we take into account the better-than-estimated closing budgetary balance in 2006 and the continuity of the economic boom scenario, revenue should foreseeably continue to be buoyant, enabling the surplus target set in the draft budget for the coming year to be exceeded. Achieving a higher-than-forecast budget surplus would also be favourable both from the standpoint of the Spanish economy’s conjunctural situation and from a medium-term perspective. In this respect, a budgetary consolidation drive would contribute to setting in place the right foundations for tackling the challenges posed by ageing and the commitment to meet the requirements arising from protection in situations of dependency. In the budget for 2007, some expense items have been accorded particular attention, such as those aimed at improving productivity; in this connection, the resources earmarked for education and innovation and for investment in infrastructure have been increased. The priority given to these items is most appropriate, given the poor productivity figures witnessed. Yet what is important is to ensure the efficiency of the measures undertaken, so that increased resources effectively translate into actual improvements in the Spanish economy's capitalisation and productivity in the medium term. Improving the efficiency of expenditure management by the different tiers of general government is also a vital requirement for maintaining a healthy fiscal position.