However, the meagre progress in structural reforms and the unorthodox direction taken by some countries’ economic policies may curtail future growth possibilities. In the short run the world economy can be expected to continue posting high growth, unless the US slowdown becomes more acute and the rest of the world is unable to continue growing under its own steam. Further ahead, the continuity of the high rate of expansion of the world economy is more uncertain. The increased efficiency and productivity gains brought about by globalisation, through greater trade integration and a far-reaching reallocation of resources and factors, might begin to weaken. In this setting, the emergence of protectionist tendencies – such as those manifest in the difficulties of moving the Doha round forward – is an added risk to continuing high growth. Inflation has remained contained worldwide. The growing integration of the emerging economies into the global economy, providing abundant low-cost labour, coupled with heightened competition on world markets and technological innovation have allowed price increases to moderate significantly. The anchoring of inflation expectations, to which the credibility acquired by central banks in their efforts to preserve price stability has contributed, and the headway in the programmes for structural reform and increased flexibility in economies have likewise eased inflationary pressures. All these developments have helped contain the upward pressures stemming from the impulse of domestic demand and have made the task of monetary policies easier.

But when you are part of a monetary union, the most valuable economic policy instrument is, as our own experience indicates, the deepening of reforms in order to increase the responsiveness of supply and the adaptability of the business and productive sectors to the major changes the economy is undergoing, such as globalisation and population growth. 4  BIS Review 67/2007  Specifically, the dynamism and flexibility injected into the labour market by the aforementioned phenomena of immigration and growing female participation need to be accompanied by the development of a more appropriate institutional framework, without forgoing the unquestionable achievement of good industrial relations. Despite the progress achieved by labour market reforms in recent years, the need remains to better tailor collective bargaining arrangements to the different industry- and firm-level requirements and to reduce the costs associated with permanent contracts. These measures should be complemented by others aimed at improving the quality of the labour factor, by giving greater priority to educational policy in order to redress the secondary education deficit, adapt university courses to new demands and promote effective continuous training for workers. Improving the efficiency of the economy likewise requires increasing investment in physical and technological capital, fostering innovation, pushing through privatisation where appropriate and stepping up the pace of the processes undertaken in recent years to heighten competition. The infusion of competition is particularly relevant in industries pivotal to spreading gains in efficiency to the rest of the economy, such as the network industries, the telecommunications market, the energy sector and rail transport.