the first half of 2006. Thus, the indicator of the state of the Spanish economy drawn up by BBVA, the IA BBVA1, has been on a rising trend from the beginning of 2005 and, although it seems to slow in the middle of 2006, it outperforms the expectations of the end of 2005.
The factors determining household consumption, disposable income and wealth are increasing more moderately, in line with the behaviour of real wage income (employment and real wages) and the continuous slowdown in housing prices. Thus, the scenario of a slowdown in household consumption, which has been observed since the second half of 2004 and will continue in 2006 and 2007, is consolidated. However, the rapid growth of consumer credit in the first half of 2006 could be helping to hold back moderation in spending, which will be less acute than had been expected.
Mortgages are also increasing in a sustained fashion and this, in a context of slower housing prices, points to an increase in household demand for financing. At the same time, rises are observed on some real estate indicators for demand (appraisals) and activity (housing starts), which are consistent with greater buoyancy in housing construction than anticipated. Domestic demand factors, the same ones as for household consumption, justify a medium-term scenario of gradual adjustment for the sector. Thus, investment in housing will foreseeably register its largest increase since 2003, to slow also more acutely in 2007, when the tougher financial conditions start to be more strongly felt. However, employment will continue to be the main factor supporting disposable household income, with growth rates of nearly 3% registered in 2005 in terms of the National Accounts, the highest rate of the last three years. The continual decreases in the real unit labour cost favour more intensive use of the labour factor. Moreover, the extraordinary process of immigrant regularization in 2005 normalized the situation of 573,000 workers, 3% of Social Security subscribers at the end of the year.
In contrast with this scenario of moderation on the domestic front, foreign demand will make a positive contribution to the growth of goods and services and corporate investment. The sharp increase in exports shown in the National Accounts in the first quarter of 2006, with the highest growth rate of the last five years, responds to the improvement in world goods trade. In addition, the increases in goods sales are currently particularly large in destinations outside the EU and amongst capital goods for transport. In these circumstances, the income effect of stronger demand amply offsets the slower trend in respect of the increase in Spain's relative prices. In a context where the low level of the cost of capital employed will begin to rise and the positive financial situation of businesses will be maintained, corporate investment will continue to grow at historically high levels, but without reaching the rate of 2005. Here, the qualitative indicators reflect faster growth of industrial orders from abroad than from the domestic market.

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