market, which may lead to lower revenue than the course of output might suggest, as was the case in 2011. the foreseeable decline in employment also appears to suggest social security contributions will be more modest than budgeted. finally, there is substantial uncertainty surrounding projected revenue takings in respect of the special treatment accorded to undisclosed income. turning to expenditure, the draft budget outlines highly significant cuts in public investment, current transfers and goods and services purchases. these projections are not without risk, given the substantial inertia some of these items show, which hinders any permanent change in their trajectory. precisely to reinforce this trajectory, the government added further education and health - care measures following the presentation of the draft budget, which should contribute to attaining the targets set. that said, overspending on items such as unemployment benefits or pensions cannot be ruled out, since they depend on factors beyond the control of the authorities, such as the unemployment rate, demographics and inflation. given these risks, the budget must be rigorously implemented and mechanisms activated to enable any emerging deviations to be detected sufficiently in advance, so that additional countervailing measures may be taken. if this were necessary, measures to contain current expenditure or to increase indirect taxes could be adopted, as already contemplated in the stability programme ahead of 2013. nor can it be ruled out that the temporary tax increases approved this year may have to remain in place for longer or be replaced in time by other permanent measures. bis central bankers ’ speeches i believe that in a country as decentralised as spain, and in light of the deviations that arose in 2011, what was needed was to accompany budgetary consolidation with a significant strengthening of the institutional framework, so that all tiers of government might be called on to meet their commitments. fortunately, the recently approved organic law on budgetary stability is a substantial improvement here. moreover, it is fully attuned to the recent eu reforms on governance. also, the agreement reached a few days back between the central and regional governments under the aegis of the fiscal and financial policy council on the deficit targets for 2012 and on the consolidation plans to attain these targets is excellent news. this lays the foundations for avoiding overruns such as those witnessed last year. what is crucial now is the swift and effective implementation of the instruments envisaged in this organic law, in particular the monitoring and control mechanisms for public finances at all levels of government, and those intended to enforce compliance with the targets set by all

income account, where the surplus widened. given that h1 saw the lowest current account deficit on record, equalling only 1. 6 % of gdp, we now project it at around 2. 5 % of gdp at the level of the entire year, instead of 4. 5 % 1 of 10 that we expected in may, though back then we also emphasized the high probability that the deficit would be lower than projected. – according to preliminary data, foreign capital inflow from fdis reached eur 2, 442 mn in seven months, exceeding the current account deficit multiple times. this fuelled appreciation pressures, to which the nbs responded by buying foreign currency worth close to eur 2. 5 bn net in the year to july, boosting fx reserves to a new record high of eur 23. 1 bn in late july. – in the year so far, fiscal trends have exceeded expectations, owing to higher revenues, notably in light of increased profitability of corporates last year and savings on funds intended for overcoming the energy crisis. this opened room for the provision of support to domestic investment and consumption, without jeopardising the projected downward public debt trajectory in the medium run or triggering any major inflationary pressures. under the latest data, the share of central government public debt is at a level only slightly above 50 % of gdp. in the remainder of the conference, we shall present macroeconomic developments and our new projections in more detail. * * * as usual, we shall first elaborate on developments in the international environment, as they largely determine both domestic macroeconomic trends and our monetary policy decisions. at the very start, i wish to underscore that the risks to macroeconomic projections associated with the international environment are now weaker than three, six or nine months ago, but there is still higher probability that they may be detrimental to domestic developments. consistent with expectations, global economic growth has slowed this year, on the back of pronounced geopolitical tensions, relatively high inflation and tight global financial conditions. the negative effect of these factors was partly offset by a better situation concerning global supply chains and a preserved labour market, wherefore the imf ’ s global growth estimates are somewhat more favourable than three months ago. the euro area growth, as the most important for our economy, was also slightly adjusted upwards, but will be led mainly by service sectors and, to a lesser extent, production sectors, with a mild recession projected for germany. 2 of 10 chart 2 world food