luis m linde : the challenges of the spanish economy opening remarks by mr luis m linde, governor of the bank of spain, at the xxiii meeting of the financial sector, organised by abc, deloitte and sociedad de tasacion, madrid, 19 april 2016. * * * introduction let me begin by thanking deloitte, sociedad de tasacion and abc for their kind invitation to deliver the closing address of this first session of the xxiii financial sector meeting, devoted to analysing the challenge of profitability in an environment which is most definitely uncertain. i would like to address the situation of the spanish economy and its main challenges. the recovery of the spanish economy over the past three years has been one of the highlights of recent developments in the euro area. to explain it, we must consider both structural or more durable factors, and temporary ones, some of which have been given by the international context. the structural factors relate to the still - incomplete correction of the main imbalances built up during the last cyclical upturn and during the crisis, but also to the improved financial landscape. the job creation observed since 2013 has been a significant prop for demand and, by sustaining household disposable income, for the improvement in confidence. in the course of 2015 there was further progress in the ongoing deleveraging of households and firms, and spain posted an external surplus or net lending, based largely on the gains in competitiveness achieved since the onset of the crisis. these developments took place against the background of the normalisation of financial conditions. contributing to this process were the domestic reforms applied and the ecb ’ s monetary policy measures, together with progress in emu governance arrangements. in the case of monetary policy, the ecb ’ s deployment of a raft of non - standard measures favourably impacted financing conditions, reducing financial fragmentation in the euro area and prompting a pick - up in bank lending. in turn, on the back of expectations of a recovery in the us economy, the euro area monetary policy enabled a substantial depreciation of the euro in the first half of 2015, which helped european – and spanish – exporters to increase their relative weight in international markets. adding to these factors underpinning the recovery in activity and employment were the marked decline in oil prices and fiscal policy, which joined monetary policy in its expansionary stance, in contrast to its restrictiveness in previous years. our recovery can hardly continue to be based,

to the same extent as in 2015, on these expansionary factors. the mix of stimuli, both from demand - side policies ( monetary policy and fiscal policy ) and from the fall in oil prices since 2014, is going to have less of an impact on growth. fiscal policy will have to be restrictive again until the process of fiscal consolidation is complete. and, as to the exchange rate of the euro, the most prudent assumption would be that it will not be a significant additional stimulus but rather approximately neutral, at least during 2016. on the international front, global and european gdp growth forecasts have been revised downwards in recent months. to mention what appear to have been the most important factors, this has been due to the decline in activity in some of the main emerging economies and to the sluggishness of world trade. bis central bankers ’ speeches as a result, for this year and for next year too, we should expect more moderate growth in the spanish economy than in 2015. indeed, the latest projections published by the banco de espana and by various analysts and international institutions are along these lines, with gdp growth rates of 2. 7 % in 2016 and 2. 3 % in 2017. this lower growth will come about when we are still far from having sufficiently corrected the serious imbalances that built up in the expansion and in the early years of the crisis. these may be listed under four headings : the labour market ; fiscal consolidation and public debt ; private debt and dependence on external funding ; and productivity. let us look more closely at each of these four aspects. 1. the reduction in unemployment firstly, unemployment. the main challenge facing the spanish economy is to reduce the unemployment rate, which stood at the end of last year at almost 21 %, 6 pp down from its peak at the start of 2013, but still far above the average for the european union and the level in almost every other euro area country. but the problem is not just the high volume of unemployment ; it is also the high proportion of long - term unemployment ( defined as the number of people out of work for over a year ). our rate of long - term unemployment has scarcely dipped from its 2014 peak, which means that it is currently three times as high as in 2008. if we only consider persons unemployed for over two years, the rate has increased by 44 % in 2015, to four times the level in 2008. these levels of unemployment and long - term unemployment indicate the difficulty our economy has