luis m linde : performance of and outlook for the spanish economy testimony by mr luis m linde, governor of the bank of spain, before the senate in connection with the draft state budget for 2016, madrid, 23 september 2015. * * * luis m linde : performance of and outlook for the spanish economy testimony by mr luis m linde, governor of the bank of spain, before the senate in connection with the draft state budget for 2016, madrid, 23 september 2015. ladies and gentlemen, in my appearance today, as part of the process of discussion and approval of the budget in the senate, i will focus on analysing the performance of, and outlook for, the spanish economy and on the role of the state budget for 2016, following approval of the draft law by the government on 31 july, and the role of the budget plan for 2016, submitted to the council of ministers on 11 september. the external setting of the spanish economy heightened uncertainty is presently the most noteworthy feature of the external setting of the spanish economy. the recovery in the advanced economies and the return to normal on the international financial markets have been affected by the consequences of the global economic slowdown, as a result of the downturn in some emerging economies, particularly china, and especially in light of the difficulties involved in assessing its real magnitude in the medium term. the risk that the figures that are now emerging might herald a sharp correction in the imbalances that built up in the chinese economy during the lengthy period of strong growth is having a negative impact on world trade, oil prices and the stock markets and foreign exchange markets. it is also very probably having an effect on the timing of the federal reserve ’ s decision to raise its key policy rates. a more positive development, however, is the approval and start - up of the third bailout programme for greece, which has mitigated another key source of uncertainty for both the european and the spanish economy. in the euro area, gdp rose by 0. 4 % in q2. this is lower than the q1 figure ( 0. 5 % ) and it is also lower than most forecasts of public and private sector analysts. along the same lines, on 3 september the european central bank ( ecb ) revised down slightly its growth projections for the euro area, for both 2015 and 2016, to 1. 4 % and 1. 7 %, respectively. these figures continue, in any event, to be more positive than those expected at the end

of last year. the inflation projections were also revised down, to 0. 1 % for 2015 and 1. 1 % for 2016. inflation is, therefore, expected to continue to rise, in 2017 also, but at a slower pace, remaining still some distance from the price stability target of 2 %. on 3 september the ecb reiterated that it was willing and able, if need be, to adopt a more expansionary monetary policy stance. the various measures taken, including in particular the purchases of government debt securities, have allowed a more uniform transmission of expansionary momentum to the euro area countries. this benefits, in particular, the countries such as spain that were hardest hit by the fragmentation of european financial markets. the financing conditions of the spanish economy have improved significantly. lending is slowly but gradually returning to normal, as households and firms undertake the necessary deleveraging and new financing flows towards those that are in the best position to take on new investment and spending projects. as the cost of these new funds is lower, this also bis central bankers ’ speeches reinforces the fiscal consolidation process and helps improve the balance of payments position. performance of and outlook for the spanish economy compared with the weakening in the euro area, gdp in spain grew by 1 % in q2, slightly above the growth rate for the opening months of the year. this figure confirms the recovery in the spanish economy, the progress made in the correction of imbalances and the improvement in financing conditions for households and firms. gdp growth in q2 continued to be based on highly robust domestic demand, with some quickening among the components most closely linked to private demand ( household consumption and investment in capital goods and housing ). however, net external demand made a slightly negative contribution, as has been the case almost continuously since the start of the recovery, owing to the strong import momentum. the latest indicators, for q3, suggest that this growth trajectory will hold in the second half of the year, in keeping with the banco de espana ’ s pre - summer projection of gdp growth of slightly over 3 % in 2015. for 2016 the estimate was marginally lower ( 2. 7 % ), on the back of a degree of weakening in some of the factors that have driven growth this year, stemming in the main from the drop in oil prices and the depreciation of the euro. as i indicated earlier, the outlook for the external setting has deteriorated and there is heightened uncertainty and volatility in the financial markets. it is