The economic recovery in the UK has now been under way for some eighteen months or so. Although the recovery has thus lasted almost as long as the recession, whole economy output has not yet returned to the pre-recession peak attained in the first half of 1990 (see Chart 1). Recent data and business surveys indicate that the pace of recovery remains moderate, with growth broadly in line with trend levels of 2–2 1/2 per cent per annum. We continue to expect that growth will accelerate a little in the coming months, reflecting the gradual response of the economy to the relaxation in monetary policy over the last two years.

The National Institute produces four World Economy forecasts each year based on the output of the Global Model, NiGEM. We have rebased and expanded the model. The trade and competitiveness system is now based on the pattern of trade in 1987, and we have adapted the model in order that we can produce forecasts for Spain, the EC as a whole, and the OECD as a whole. We will report on the associated research in subsequent issues of the Review.

Childcare may affect the earnings of mothers, not just by enabling them to take employment while using it, but also by conserving human capital and increasing earnings at later stages of the mother's life. This paper simulates the lifetime earnings of a ‘typical’ British mother under a variety of childcare regimes. Childcare which continues into the years of schooling is particularly valuable. For a woman who changes her labour force participation behaviour as a result of the availability of childcare, the resources generated are shown to exceed the resource costs of the childcare, and the revenue gain to the exchequer may exceed the costs of 100 per cent subsidy.

The UK economy has suffered through two deep recessions over the last decade and, as a consequence, its productive structure has undergone a major transformation. The most visible consequences of these events include two waves of large scale job shedding (with profoundly different regional impacts) accompanied by persistently high unemployment throughout the 1980s and early-1990s. This time period has also seen steeply rising small and large firm failure rates, a major reshuffling in the ownership of many businesses, severe imbalances between the supply of and demand for certain types of skills exacerbated by regional immobilities in labour, a crisis of consumer confidence coupled with a reluctance by consumers to take on (or add to) their long-term debt, and a general decline in the authority and confidence with which demand management policies have been pursued.

In recent years Spain has experienced rapid economic development during a period of increasing European integration. Spanish policymakers have enhanced their credibility by becoming a member of both the EC and the ERM. A strong commitment to Spanish participation in a future European Economic and Monetary Union confirms Spain's determination to ‘catch-up’ and converge towards the model of the more advanced economies of Europe. The National Institute's Global Econometric Model (NIGEM) now contains a detailed econometric model of Spain. This note begins with an overview of economic events and policy in Spain over the last twenty years. This is followed by sections which describe in more detail the reforms and economic outcomes regarding the labour market, price and wage determination, the balance of payments and the finances of the public sector. The econometric model is then described and the effects of the structural reforms upon the individual equations evaluated. The penultimate section uses the model to simulate the effects of macroeconomic policies which the Spanish authorities have either implemented or may be considering. This is followed by a conclusion.

The Spanish economy has undergone a transformation in the last decade, in the course of which it has emerged significant industrial power. This process has been associated, in part with EC membership since 1986, a result of which has been a reorientation of trade away from traditional trading partners, such as Latin America and towards the EC. In 1991, 67.2 per cent of Spanish exports of manufactures went to other EC countries, compared with 51.2 per cent in 1980. Spain has, too, been a favoured destination for foreign direct investment in recent years, facilitating the development of new industries.