breaching of ceilings on fiscal deficits, especially in countries where this could trigger recovery. we welcome the reforms undertaken to improve the accounting and auditing standards and corporate governance practices both in the us and the eu. these improvements are partly reflected in the strengthening of corporate bond and equity markets. the primary bond market issues have become more buoyant. sovereign yields, in general, have declined, combined with a compression of yield spreads. we consider these developments as supportive of increased capital flows into emerging markets and for the general strengthening of intermediation in international capital markets. though there was a temporary upward shift in the long - term yields of bonds in the us, potential for significant risks of further increase in bond yields appear remote. first, the policy interest rates have declined to historically low levels and upward hikes in quick succession are therefore unlikely. the housing and mortgage markets as also bond markets cannot withstand such sudden shocks. second, the probability of inflation undershooting and the consequent adverse implications for deflationary expectations are feared by many. the question also remains as to how long and to what extent the us would lead the global recovery. it is important for the eu and also japan to intensify structural and financial sector reforms with redoubled vigor. in some countries, labor and product market reforms should receive priority as important components of such reforms. we encourage the euro area countries to take steps to promote productivity and efficiency gains, given the minimal scope, in the short - run, for achieving higher labor participation rates. the necessity of achieving these gains, and a general increase in demand arises from the impending medium - term fiscal risks associated with demographic trends and the attendant pension reforms. similarly, we recognize that more vigorous steps may help japan counteract deflationary expectations an address the fragility of the financial system. in the mediumterm japan also requires further restoration of fiscal stabilization. growth is expected to remain robust in most emerging market economies and, to some extent, in africa. these are propelled in no small measure by stronger macroeconomic policies, structural reforms and improvements in the institutional structure. prospects have also improved due to general improvements in major industrial countries, favorable terms of trade due to non - oil commodity price increases, and improved financial market conditions, especially in the bond markets. it is imperative that greater resources flow into these countries to help sustain growth. the current favorable financial market conditions, no doubt, provide an opportunity for these countries to steer ahead with remaining structural reforms and

requirements, albeit lower than those in other major european countries. the current macro - financial environment will heighten the financial vulnerability of households, firms and the public sector clearly, the combination of inflationary pressures, tightening financial conditions and higher uncertainty will weigh on households ’ consumption decisions and their residential investment. in the case of firms, these adverse factors may also reduce their productive investment and hiring expectations. in short, activity will face additional downward pressures. and these factors are also having significant effects on public sector financing, which i will turn to now. again, it is important to underscore the private sector ’ s relatively benign financial position before the pandemic, thanks to households'and firms'considerable debt reduction since the global financial crisis. in fact, in march 2020 their debt as a proportion of gdp stood at 150. 4 %, slightly below the european average and down by 76 pp on the peak of june 2010. the outbreak of the pandemic and the measures adopted to mitigate its effects, such as the moratoria on financial obligations and the public loan guarantee scheme, underpinned and galvanised credit in 2020, putting that debt at 157. 8 % of gdp. however, the overall cumulative growth in the stock of loans has been moderate, with bank lending to the resident private sector in spain increasing by 4. 2 % since 2019. in the case of firms, business turnover appears to have continued to recover in nominal terms during 2022 h1, leading to an improvement in most firms ’ economic and financial position, particularly those in the sectors hardest hit by the pandemic thanks to the lifting of the restrictions on movement. the exceptions are firms in the sectors most exposed to the rise in energy prices and that were not greatly affected by the pandemic, whose economic and financial situation now appears to be deteriorating somewhat. against this background, the latest bank funding data suggest greater buoyancy in business lending, with the total stock of loans growing year - on - year in recent months, contrasting with the declines recorded in 2021. this performance seems to owe both to firms covering their financing needs and to a precautionary motive, since the growth in their bank deposits is also accelerating. in any event, the rise in interest rates is beginning to affect new lending. the simulations recently conducted by the banco de espana suggest that a rise in market interest rates in line with that observed to date ( around 300 bp ) would, in the short term, drive up the