Contributing to this lesser momentum, on one hand, has been the change to a more moderate growth model in China; owing to lower Chinese demand for commodities and the interrelated effect on global production chains, this has been instrumental in the lower growth in the other emerging economies. Further, the expectations that global financial conditions will normalise have led to fewer capital flows towards certain emerging economies, exposing their vulnerabilities linked to their dependence on external funding. In any event, exchange rate flexibility or sizeable volumes of reserves have enabled them to withstand, in better conditions than in past periods, this episode of reversed capital flows. In sum, this new outlook reveals greater certainty about the recovery of the global economy and a shift in the central points of uncertainty from the developed economies – and in particular from the euro area countries – to the emerging economies. As regards price developments, the current phase of recovery is marked by the absence of inflationary pressures in the main advanced economies, with the exception of Japan, with inflation rates significantly below the targets set by central banks being recorded. Contributing factors here were the persisting slack in labour markets, the low levels of capacity utilisation and the moderation of commodities prices, in particular of oil. The absence of inflationary pressures has been conducive to an accommodative monetary policy stance being maintained globally, with official interest rates anchored at levels very close to zero and extraordinary liquidity provision measures still in force.

In 2013 Spanish banks persisted in their efforts to increase efficiency, readjusting their operating capacity by pruning staff and branch numbers in their business in Spain, which, compared with the highs in mid-2008, were down by around 20% and 25%, respectively. In an environment characterised by persisting downward pressure on earnings from factors such as weaker lending, low interest rates and still-high provisioning needs, banks have to persevere in reducing their operating costs and improving their efficiency. Conservation of banks’ capital In 2013 the banking sector strengthened its solvency. The aggregate core capital of all deposit institutions stood at 11.5% at the end of that year, up somewhat more than 2 pp on end-2012. From a medium- and long-term standpoint, the banking sector has to maintain its capital conservation policies. The economic recovery is still incipient and some fragmentation persists in the euro area financial markets. Moreover, the new solvency legislation which came into force in Europe last January implementing the requirements of the Basel III Accord, but whose application has yet to be completed, calls for, inter alia, higher levels and quality of capital. The Banco de España, recognising that it is desirable to conserve capital and strengthen solvency levels, last February renewed its recommendation that banks should limit their dividend payout policies. Challenges facing the Spanish economy and the role of economic policy I shall conclude with some thoughts on the challenges facing the Spanish economy and the role of economic policy. Our economy is currently setting its growth on a firm footing.