we have instead decided to use some time to bring inflation back to target. household debt has risen sharply since the mid - 1990s. at the same time, house prices have shown a marked increase. debt developments through the 1990s can probably be viewed to some extent as a delayed adaptation to the deregulation of the housing and credit markets in the 1980s, after many households burned their fingers immediately after the deregulation. at the same time, the credit market has deepened. new loan products have emerged, and it is easier to raise loans. borrowers can choose their repayment schedule. credit and housing market liberalisation provides homebuyers with the opportunity to establish a high housing standard early in their adult lives and draw on this capital later in life. in recent years, household income growth has been solid, household confidence regarding the future has been strong and households probably perceive higher income levels as permanent. this may have resulted in a further rise in house prices and debt. in addition, low real interest rates are currently contributing to this. we have limited scope for restraining structural changes that take place when households increase their debt over several years in order to invest in housing and other property and assets. an interest rate level that effectively restrains this restructuring process would also have had adverse effects on economic activity. however, households are more vulnerable when debt is high. long periods of sharply rising asset prices and debt may be a source of subsequent instability in production and employment. we believe that expectations regarding interest rate developments have a greater impact on household and business borrowing and investment behaviour than actual interest rates. norges bank communicates its analysis of the outlook for the norwegian economy and the interest rate. at this juncture, the outlook for output and inflation suggests that the interest rate should be gradually – in small, not too frequent steps – brought up to a more normal level. 7 the economic outlook is uncertain. we illustrate interest rate uncertainty ahead with a fan chart, which is meant to capture the outcome with a 70 per cent probability. the consequences of higher interest rates for two households are illustrated in this chart. both households comprise two adults and two children. one household has a gross income of nok 800 000 and nok 2 million in debt. the other has an income of nok 600 000 and nok 1. 5 million in debt. the chart shows the two households ’ income after basic expenses and interest and principal payments have been paid. the household with an income of nok 800 000 can cope reasonably well

more than 80 pp of gdp since the start of the financial crisis ), which is also accompanied by a considerable structural budget deficit. in addition, the banco de espana, along with other institutions and analysts, has in recent years highlighted the vulnerabilities stemming from the increase in certain aspects of inequality in spain, in particular in the area of opportunities. with this backdrop in mind, what lies behind this failure to converge and what role does productivity have to play in this process? first, it should be pointed out that the comparatively low productivity of spain ’ s firms is a widespread problem, unrelated to the sectoral specialisation of the economy or the size of such firms. the sectoral structure of the spanish economy, skewed more towards services such as wholesale and retail trade and the hospitality sector, only partially explains our country ’ s poor level of productivity, as measured in terms of output per hour worked. this output stands 14 % below that of the euro area. if spain had the sectoral structure of the euro area, this negative gap would still be 10 %. 2 endogenous growth models show that knowledge is the only factor of production that generates positive externalities and economies of scale. romer ( 1986 ), lucas ( 1988 ) and aghion and howitt ( 1992 ). this figure is a 2020 update on the figures set out in cuadrado, moral - benito and solera ( 2020 ). nor can lower productivity be attributed simply to the smaller size of spain's business sector. when the registry data on firms from spain, germany, france and italy are grouped together by size, spanish firms are between 10 % and 20 % less productive than their european peers, regardless of size. 3 in reality, this lacklustre productivity is symptomatic of an array of interconnected shortcomings. today i will focus on five factors behind these shortcomings. the first factor concerns the very minor role played by innovation in our economy. to give one example : between 2020 and 2021 the ratio of research and development and innovation ( r & d & i ) expenditure to gdp stood on average at 1. 2 % in spain, 0. 8 pp below the euro area average. 4 the private sector ’ s failings in this area are particularly striking. spain has a lower percentage of innovative firms5 and its industrial sector ( traditionally the most innovative ) makes less of a contribution to value added, while spending on r & d & i is lower