increases in activity and employment have been accompanied by very low inflation rates. the fall in oil prices has prompted declines in the general level of prices over much of the past year. yet core inflation, the indicator that excludes energy and fresh food prices, has moved on a rising course over the year. and while still at moderate levels, this indicator ’ s recent trajectory suggests the risks of entering an overly prolonged period of very low inflation have progressively been dispelled. while in july the overall price index posted growth of 0. 1 %, influenced by fuel prices, inflation at the end of the year is expected to be around 1 %. in any event, the still - high spare capacity in the economy presages a gradual recovery in inflation over the next two years. the factors underpinning the recovery the path of recovery of growth and employment has essentially been underpinned by the restoring of macroeconomic and financial equilibria, which were severely eroded in the crisis. progress has been visible in the correction of the external imbalance, the deleveraging of households and firms, the redressing of fiscal balances towards levels more compatible with the sustainability of public finances and the restructuring and consolidation of the banking sector. unemployment, too, is showing clear signs of a correction. the reforms undertaken within spain, along with the headway in economic and monetary union and the application of the highly expansionary monetary policy by the ecb, have proven key to restoring confidence and providing for the progressive absorption of the imbalances. by way of illustration, the proportion of spanish public debt held by nonresidents has risen from 30 % in 2012 to 44 % at present, an increase indicative of the improved confidence in our economy, but also of its dependence on the perception abroad of the soundness and continuity of our recovery. despite what has been achieved in growth, employment and restoring equilibria, we are far from having overcome all the factors of vulnerability. doubts over the continuity of the macroeconomic, fiscal and financial rebalancing drive might curtail and lead to backtracking from these achievements. we must not forget that the legacy of the crisis is still burdensome. our unemployment rate remains above 22 % ; households and firms are speedily reducing their high debt, but public debt as a proportion of gdp has increased by over 60 pp since 2007 ; and the economy ’ s financial dependence on the external sector remains high, with a net debtor position of close to

fiscal consolidation process, measured by the change in the primary structural balance, will be very limited, in line with the latest updated stability programme, which anticipated that the fiscal policy stance would be essentially neutral in the 2015 – 2018 period. naturally, any slippage in growth or rise in financing costs would hamper fiscal consolidation, making the process more demanding. in 2016, according to the draft state budget, the planned reduction in the deficit will stem firstly from lower public spending, whose ceiling for the year as a whole, excluding that derived from local and regional government financing arrangements, will entail a reduction of 4. 4 % in relation to that set for 2015. the key expenditure - side measures are the 1 % increase in the remuneration of public sector employees and the refund in 2016 of the remaining 50 % of the extra salary payment eliminated in 2012. with regard to public employment, a standard 50 % replacement rate has been established for public - sector vacancies, rising to 100 % in priority sectors. overall, these measures would lead to growth of 2. 7 % in wage expenses in the state budget relative to the 2015 budget outturn projection. the restrictions on current expenditure on goods and services are maintained, with a 14 % reduction. notable with regard to the social security system is the 0. 25 % revaluation of pensions, in keeping with the provisions of the 2013 reform. the projected growth in spending on contributory pensions in relation to the initial 2015 budget is rather higher, at 2. 8 %. this is as a result of the foreseeable increase in the number of pensions and of the substitution effect in terms of new pension claimants as opposed to deregistered pensioners, meaning that the weight of pensions spending relative to total consolidated spending of the state and social security system rises to 38. 5 % ( 37. 8 % in 2015 ). mention should also be made of the reduction in spending on unemployment benefits, by 21. 9 % relative to the initial 2015 budget. this is due to the fall in unemployment and in the coverage rate of the contributory benefit, which is partly offset by a shift in beneficiaries to non - contributory benefits, such as reinsertion scheme income and economic assistance under the activation programme for the unemployed. finally, a further decline in the interest burden on government debt is foreseen as a result of the reduction in interest rates. on the revenue side, the main measures include the application of the second