##tedness. nor are significant changes in the ongoing adjustment of residential investment foreseeable. on the demand side, no improvement can be expected in affordability conditions given the outlook for private sector income and wealth and, on the supply side, the overhang of unsold housing will continue to hold back the launching of new construction projects. the need to reduce the levels of indebtedness of all sectors and the prevailing conditions of access to external financing will continue to curb the possibilities for any expansion in domestic spending. exports might be the only component of output to increase in 2012. admittedly, the international situation is subject to a high degree of uncertainty and, in particular, the activity of the euro area as a whole is expected to flatline or fall slightly. but it is also true that the behaviour of exports has been very favourable over the last two years and spanish firms have been increasingly diversifying their exports towards third markets with more dynamic demand. unfortunately, the stimulus provided by external demand will not suffice to offset the effect of the other contractionary forces on employment, which can be expected to fall further. if the labour reform were to begin to produce its effects soon, wages might grow somewhat slower than in 2011. and along with productivity gains, that would lead to further declines in unit labour costs, thus enabling competitiveness gains to be made. prices will continue on the moderating path on which they embarked in the second half of last year, although the risk of rising energy prices has not disappeared. to sum up : the scenario described indicates that domestic demand will continue to adjust in step with the ongoing financial deleveraging and fiscal consolidation. in these circumstances, it is vital that the gain in the share of our sales, both abroad and at home, should be the main driver of activity in spain. and, accordingly, achieving sustained competitiveness gains, which must come from the implementation of ambitious supply - side reforms and measures, is crucial. if these reforms and measures should restore confidence in the spanish economy, reduce financing costs and improve the foundations for future growth, 2013 may witness a recovery. in this situation, the 2012 budget forms part of a more general medium - term consolidation strategy, requiring the collaboration of all levels of government. details will be available in a few weeks, when the government presents the stability and growth programme to the european authorities. the stability programme should contain precise and explicit details of all the elements on which this consolidation process will be based. the targets set by

the global economy through trade and commodity prices and via indirect contagion effects owing to higher risk aversion in international financial markets. the main issue regarding the chinese economy is not whether it slows by a fraction of a percentage point more than projected, but rather the external consequences of such a development. for example, a slowdown in growth to around 6 % of gdp, compared with 7. 3 % in 2014, is no grave cause for concern. in principle, these figures, which largely reflect the change in china ’ s production model to an economy more geared towards consumption, can be managed by the authorities. the uncertainty lies in the difficulty of evaluating the external effects of such changes, and the fact that the differing forecasts of private and public agents are reflected in greater volatility in financial markets. asian and latin american emerging economies are particularly sensitive to changes in the international arena. in latin america, gdp data for the second quarter show a significant slowdown. the brazilian economy, in particular, is worrying given its high budget deficit and significant current account shortfall ( although the latter has begun to be corrected ), along with inflation that needs to be contained and corrected as soon as possible. the imf projects brazilian gdp will fall by 3 % this year and will fall further, albeit moderately, in 2016. i would like to indicate that the impact of the downturn in the emerging economies on spanish banks, even for those with significant exposure to some of these economies, has been moderate. the geographical diversification of their businesses and the adjustments made to their management have contributed to the stability of their balance sheets. developments in the euro area as for economic developments in the euro area, growth in the second quarter was external demand - led, although internal demand continues clearly to support disposable income arising from lax monetary policy, the neutral fiscal policy stance, low energy prices and the improvement in the labour market. bis central bankers ’ speeches in september, the ecb revised downwards its growth projections for the euro area to 1. 4 % in 2015, 1. 7 % in 2016 and 1. 8 % in 2017. it should also be noted that the approval and start - up of the third bailout programme for greece has mitigated the risks in the area, a source of uncertainty for the spanish and other european economies. a characteristic of the current situation in the euro area is the trend towards disinflation. the ecb expects to end this year, 2015, with