of risks following a long period of excessive indulgence, and this should make for sounder economies in the medium and long term. nevertheless, the correction is causing tension in lending conditions which, if it persists too long, could also bear on the confidence of investors and other economic agents. however, it is still premature to assess the effect of these shocks on world economic growth. significant data are not yet available on how economies have performed after the shock. in any event, the size of the possible effect will depend closely on how much the us economy is affected by the turbulence that has arisen there. the information available so far shows that the united states is more resilient to the residential investment crisis than originally envisaged, so the foreseeable effects seem limited. this diagnosis is consistent with the forecasts of international organisations which, while acknowledging a considerable heightening of uncertainty and downside risk, continue pointing to a scenario of ongoing world buoyancy. realistically, however, if the united states went into recession, a significant change in the world economic scenario could take place, although the impact would in any event be cushioned by the continued buoyancy of the emerging economies, which have generally been little affected by the financial turbulence. the extent of the impact on global growth will also depend fundamentally on the force and duration of the shocks generated. in the past, in episodes such as that of 1998 sparked by the collapse of the long term capital management fund and by the russian debt crisis, the financial turbulence barely influenced world economic buoyancy despite the dark predictions that accompanied it. other episodes, by contrast, such as the “ new economy ” crisis had a more far - reaching impact, albeit of varying intensity and duration in the different geographical areas. unfortunately, these experiences are no precedent for diagnosing the potential scope of the current episode, which exhibits many new features, including the fact that it is especially concentrated in the western heartland of the industrialised countries. the recent past has seen turbulence in asia, latin america and eastern europe. now, in contrast, the shocks are mainly affecting the united states and the more developed european countries. let me thus take an eminently european perspective as i examine more closely some of the main features at play here. this approach will also help me to look at its implications for euro monetary policy, which i believe is the most logical way to address the possible impact on the spanish economy. i wish to begin by emphasising the non -

economy will have to be monitored very closely. in my opinion, three factors require particular attention. first, it is necessary to gauge the true extent of the us slowdown, its possible spread to the world economy and the possible impact on exchange rates. second, at the european level, the effect of the turbulence on the cost and availability of financing for the private sector will have to be calibrated. finally, the possible impact on corporate and consumer confidence will have to be monitored carefully. the signs identified in these latter two channels, i. e. credit and economic sentiment, will be particularly informative for euro area economic growth when they affect countries in which consumption growth is still somewhat hesitant. i also believe that, echoing the words of the ecb president after the governing council meeting, this is an appropriate time to reiterate the firm commitment of monetary policy to the objective of price stability, which is the best way to promote the sustained growth of output and employment and thus the welfare of european citizens in general and of spaniards in particular. in fact, these events have taken place at a time when the spanish economy, too, continues to show considerable buoyancy that is prolonging its already long expansionary phase. output grew in the first half of this year at a rate of around or slightly above 4 % ( in line with the performance in the closing months of 2006 ) and the vigour of activity was compatible with a more even balance between domestic and foreign sources of spending. in particular, the contribution of net external demand, which trimmed two percentage points from growth in certain months of 2004 and 2005, improved in 2006 and continued to do so in the first half of this year. at the same time, the share of business investment in domestic demand has continued to rise at the expense of private consumption and residential investment. the process of normalisation of monetary and financial conditions that commenced at the end of 2005 has contributed effectively to achieving this more balanced composition of spending. moreover, the healthy performance of the world economy in 2006 and, in particular, the recovery of the euro area have spurred exports after several years of weakness. on the supply side, the growing availability of labour resources in a highly expansionary demographic setting helped to smooth the adjustment of activity to this robust demand, preventing excessive cost and price pressure from building up. indeed, the inflation rate fell to around 2 % ( 2. 2 % in july and august ), taking the differential with the euro area to half a percentage