quarter of 2024, clearly above the figure of 0. 1 % envisaged in the ecb's march projections. moreover, in the medium term gdp growth is expected to strengthen gradually, with private consumption as the main driver supported by growth in household disposable income. declining inflation and robust wage growth are two additional factors to consider. meanwhile, the ecb's monetary policy will exert less drag on the economy as 1 / 6 bis - central bankers'speeches monetary conditions gradually normalise over the projection period. as a result, the ecb's march projection exercise envisages moderate growth rates of 1. 5 % in 2025 and 1. 6 % in 2026, slightly above the average annual growth of the last two decades ( 1. 4 % ). as for inflation, in recent months it has performed largely as expected in the ecb's latest projection exercise, declining by a cumulative 8. 2 percentage points ( pp ) from its peak in october 2022 ( and by 3. 0 pp since march 2023 in the case of underlying inflation ), in a context in which the ecb's monetary policy continued to be transmitted robustly to financial conditions. however, according to the flash indicator, hicp2 inflation held at 2. 4 % in april, 0. 2 pp above the march forecast. going forward, inflation is expected to decline further in the coming quarters, albeit with a somewhat bumpy profile in the short term. indeed, energy base effects, the unwinding of crisis - related fiscal measures and the relatively slow moderation of services inflation will cause inflation rates to fluctuate during 2024. overall, the projections envisage a moderation in inflation to 2. 3 % on average in 2024 ( compared with 5. 4 % in 2023 ) and to around 2 % in 2025 and 2026. this progressive reduction in inflation would be compatible with robust – although more moderate – wage growth, against the backdrop of a recovery in labour productivity and the containment of business margins. these are expected to act as a cushion for wage pressures in the face of weak demand and the unwinding of supply bottlenecks. as for productivity, it is important to highlight the role of labour hoarding3 by firms to explain the positive performance of employment in recent quarters. despite weak demand, employers prefer to retain workers as they perceive labour shortages to be high and expect existing shocks to be temporary. therefore,

in redressing public finances and in reducing private - sector debt, and casting doubt on the resilience of the financial system. that has triggered tensions on the debt markets and activated perverse feedback loops. lastly, the spanish economy risks seeing its capacity to obtain external funding severely blocked. while in the short run this does not actually constrain ordinary funding flows ( given the banking system ’ s possibility of resorting to ecb funding ), the prolongation of such a situation will be extremely harmful in the medium term. spain is in this situation despite the fact that its authorities have implemented far - reaching reforms in recent years to resolve the inefficiencies in its economic functioning, to correct the serious deterioration in public finances and to redress and restructure the financial system, in order to restore financing flows. resolving these problems is taking longer than expected, but that should not lead to reform fatigue. it is important to persevere with the economic policy actions undertaken. in this way the levels of competitiveness needed to ensure the smooth functioning of the euro area may be regained, the ordinary funding channels restored and the imbalances built up in recent years, in particular in relation to public finances, finally corrected. these requirements must be met if the economy is to begin to generate employment and to grow. the adjustment continues to fall on domestic demand, weighed down by the correction of imbalances, the fiscal consolidation drive and tighter financing conditions. the external sector continues to soften the impact of domestic spending on activity, due both to the buoyancy of exports and to the slackness of imports from the rest of the world, but its contribution is insufficient to halt the decline in output. in this setting, job destruction continued apace in 2011 and in 2012 to date. and, owing to the uncertain prospects for the spanish economy, a turnaround is not expected in the very short term. however, as this episode is progressively overcome, the approved labour market reforms will foreseeably have a favourable impact on employment generation, contribute to adjusting working conditions to firms ’ specific circumstances and provide for a more efficient reallocation of productive resources, which should ultimately prompt an increase in productivity levels. the cyclical weakness and the adverse behaviour of the labour market have not fed through sufficiently to the cost and price - formation mechanism, which still shows considerable inertia. the adjustment of unit labour costs is being achieved primarily thanks to the high productivity bis central bankers ’ speeches gains brought