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Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
Global and Spanish Economic Outlook - February 2014 - BBVA Research
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Global and Spanish Economic Outlook - February 2014 - BBVA Research

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The global economic cycle is improving and we expect a moderate acceleration in growth in 2014-15 supported by the developed economies …

The global economic cycle is improving and we expect a moderate acceleration in growth in 2014-15 supported by the developed economies
Some economic policy uncertainties have been resolved but there are still risks, although not of a systemic nature, as was the case in the past
For the first time since the beginning of the crisis the risks to our forecasts for the Spanish economy are to the upside. The recovery is being driven by exports, import substitution and the recovery in new lending. In addition, both financial tensions and fiscal consolidation are less intense
The scope of the reforms needs to be expanded if they are to underpin a robust and sustained recovery, and reverse the jobs destroyed within a reasonable period

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  • 1. Global and Spanish Economic Outlook February 2014
  • 2. Global and Spanish Economic Outlook, February 2014 Main messages The global economic cycle is improving and we expect a moderate acceleration in growth in 2014-15 supported by the developed economies Some economic policy uncertainties have been resolved but there are still risks, although not of a systemic nature, as was the case in the past For the first time since the beginning of the crisis the risks to our forecasts for the Spanish economy are to the upside. The recovery is being driven by exports, import substitution and the recovery in new lending. In addition, both financial tensions and fiscal consolidation are less intense The scope of the reforms needs to be expanded if they are to underpin a robust and sustained recovery, and reverse the jobs destroyed within a reasonable period Page 2
  • 3. Global and Spanish Economic Outlook, February 2014 Index Section 1 Global economy: a gradual acceleration supported by the developed economies Section 2 Spain: upside risks for the first time since the beginning of the crisis Section 3 Commitment to the reforms is crucial to consolidate the improvement in the markets and increase potential growth Page 3
  • 4. Global and Spanish Economic Outlook, February 2014 Main Messages 1 The global expansion will continue in 2014-15 this time around with higher contributions from advanced economies Global GDP growth (%) Source: BBVA Research 6 4 2 Growth risks are more balanced with upward risks in the US and downward risks that remain: • the exit from QE and flows to emerging markets, • the uneven recoveries and vulnerabilities in EM, and • the eurozone 5.2 5 4.0 3.2 2.8 3.6 3.9 2.9 3 2 1 0 -1 -0.4 -2 -3 2008 2009 2010 Adv. Economies Baseline Jan14 2011 2012 2013 (e) 2014 (f) 2015 (f) Emerging economies Baseline Oct-13 Page 4
  • 5. Global and Spanish Economic Outlook, February 2014 The global momentum is improving Manufacturing PMIs Industrial production (%,yoy) 60 16 Source: BBVA Research based on Markit Economics BBVA Financial Stress Index Source: CPB Netherlands Source: BBVA Research 0.04 14 58 1.10 12 56 0.00 10 54 0.70 8 50 0.30 -0.08 -0.10 -0.12 4 48 -0.04 6 -0.50 2 0 Global Advanced Nov-13 May-13 Nov-12 May-12 Nov-11 May-11 Nov-10 Jan 14 Aug 13 -2 May-10 Global Advanced economies BBVA Eagles Mar 13 Oct 12 May 12 Dec 11 Jul 11 Feb 11 Sep 10 46 Emerging Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 52 Emerging Markets, left axis Developed Markets, right axis Page 5
  • 6. Global and Spanish Economic Outlook, February 2014 FED’s forward guidance and ECB’s room of maneuver should anchor the global financial scenario US: Fed funds futures and long term yields (%) EMU: Future of the EONIA rate and long term yields Source: Bloomberg Tapering talks September FOMC meeting 2 Tapering talks 3 3.2 2.10 September FOMC meeting “Real” tapering 1 “Real” tapering 1 Source: Bloomberg and BBVA Research 2 3 0.35 0.30 2.8 0.25 2.4 0.40 1.90 0.35 0.30 1.70 0.25 0.20 2.0 0.15 1.6 0.10 0.20 1.50 0.15 0.10 1.30 0.05 Jan-14 Nov-13 Sep-13 Jul-13 May-13 0.00 Mar-13 1.10 Jan-13 Jan-14 Nov-13 Sep-13 Jul-13 May-13 Mar-13 0.05 Jan-13 1.2 0.45 10-Year Treasury Note Yield at Constant Maturity (Avg, %) 10-Year Bund Yield at Constant Maturity (Avg, %) Federal Funds Rate Implied by the 12-Month Futures Price (%) EONIA Implied by the 12-Month Futures Price (% ) Page 6
  • 7. Global and Spanish Economic Outlook, February 2014 The tightening of liquidity conditions is impacting on EM; anyway, differentiation remains EM: exposure to short-term capital flows and exchange rate vs USD EM: economic cycle and financial tensions 54 Source: BBVA Research -0.12 Financial tensions stop their 53 -0.09 -0.06 52 -0.03 51 0.00 50 0.03 0.06 0.09 Jan-14 Jan-13 Sep-12 May-12 Jan-12 Sep-11 May-11 48 Sep-13 49 May-13 Cycle confidence stops its improvement BBVA EAGLEs PMI BBVA Research Emerging Markets Financial Tension Index, right axis 10.0 Funding Gap (CA+FDI, avg.2Q´13-2Q'12, % GDP) Source: BBVA Research TWN 8.0 6.0 CHI KOR PHI 4.0 MASYA 2.0 0.0 BRA CHL THA IND MEX -2.0 -4.0 TUR -6.0 -8.0 -10.0 0.0 10.0 20.0 30.0 FX depreciation (Febr-14 vs. avg.Dec'12, %) Page 7
  • 8. Global and Spanish Economic Outlook, February 2014 US: the sustained recovery and the fiscal agreement bias upwards our scenario for the US US: GDP growth (y/y) US: private-sector payroll growth (monthly change, 3-month average, thousands) 3.0 300 300 250 250 200 200 150 150 100 100 Source: BBVA Research, BEA Source: Bloomberg 2.8 2.5 2.5 2.5 2.0 1.8 1.5 1.0 0.5 50 50 QE2 QE3 Jan-14 Aug-13 Mar-13 Oct-12 May-12 0 Dec-11 Baseline Oct-2013 2015 Jul-11 Baseline Jan-2014 2014 Feb-11 2013 Sep-10 2012 Twist 0 Apr-10 0.0 Page 8
  • 9. Global and Spanish Economic Outlook, February 2014 China: Growth momentum supported by recent stimulus measures and improving external demand China: GDP Growth (%, y-o-y) Source: BBVA Research 8.5 8.0 The “to-do” list of the “Third Plenum” meets our view about the needed reforms; lack of details introduces uncertainty 7.7 7.7 7.6 7.5 7.5 The objective of the Communist Party of China is to give markets a “decisive” role as mechanism of allocating resources 7.0 Efforts to curtail financial fragilities could lead to somewhat lower momentum in 2014H2 as the traditional engines of growth cannot be used “extensively” any more 6.5 6.0 2012 Baseline Jan-2014 2013 2014 2015 Baseline Oct-2013 Page 9
  • 10. Global and Spanish Economic Outlook, February 2014 The eurozone: positive growth with an increasing role of domestic demand Eurozone: GDP growth (y/y) Source: BBVA Research 2.5 1.9 2.0 Exports will remain as the main driver of growth in both 2013 and 2014 1.5 1.1 Domestic demand has weighed on growth in 2013, but will contribute to the recovery in 2014-15 1.0 0.5 0.0 Overall: lower financial tensions, higher global growth, lower fiscal drag, ECB’s loosening bias and Banking Union -0.5 -0.6 -0.4 2012 2013 -1.0 Baseline Jan-2014 2014 2015 Baseline Oct-2013 Page 10
  • 11. Global and Spanish Economic Outlook, February 2014 In the eurozone, the “double-dip” in the period 2008-13 and weak money growth have prompted inflation to fall EZ: core inflation and demand pressure, EZ: core inflation and M3, % y/y and % potential GDP % y/y Source: Eurostat, Haver and BBVA Research Source: Eurostat , Haver and BBVA Research 6.0 2.0 0.0 1.7 4.0 1.7 -1.0 1.4 2.0 1.4 -2.0 1.1 0.0 1.1 -3.0 0.8 -2.0 0.8 -4.0 0.5 -4.0 0.5 Output gap, 6-Month ahead (LHS) Core CPI y/y (RHS) M3, % y/y (LHS) Jan-14 2.0 Jan-13 1.0 Jan-12 2.3 Jan-11 8.0 Jan-10 2.3 Jan-09 2.0 Jan-08 2.6 Jan-07 10.0 Jan-06 2.6 Jan-14 3.0 Jan-13 2.9 Jan-12 12.0 Jan-11 2.9 Jan-10 4.0 Jan-09 3.2 Jan-08 14.0 Jan-07 3.2 Jan-06 5.0 Core CPI y/y (RHS) Page 11
  • 12. Global and Spanish Economic Outlook, February 2014 In the most likely scenario, the risk of deflation is low; yet it increases under more extreme situations EZ: Distribution of probability of inflation Inflation Prob. of deflation 1.0% 7.5% 0.8% 14% Monetary restriction + shock 0.4% 34% … + Unanchored expectations 0.3% 47% (average 2014) Source BBVA Research 0.7 0.6 Baseline scenario 0.5 0.4 Monetary restriction 0.3 (M3 growth = 0.9%) 0.2 0.1 0.0 -3.0 (M3 growth = 0.9%; growth <-1) -2.0 -1.0 0.0 1.0 2.0 Base scenario Monetary-restriction scenario 3.0 4.0 (M3 growth = 0.9%; growth <-1) Monetary restriction + negative schock Lost of anchored inflation expectations Page 12
  • 13. Expansión económica con diversidad de ritmos y de riesgos Interconnected risk events with potential to impact on global growth QE’s exit and disruptive effects of portfolio rebalancing Adjustment in China and other EM (*) The Eurozone Banking union, political instability and deflation risk (*) Heterogeneous developments among countries Page 13
  • 14. Global and Spanish Economic Outlook, February 2014 In sum, economic growth at diverse paces and with different risks GDP growth (%yoy) Source: BBVA Research and IMF 6.0 5.0 4.8 5.2 5.0 4.0 3.2 3.0 5.4 3.9 3.6 2.9 2.8 2.5 2.5 1.8 2.0 Growth cycle strengthens, mainly in advanced economies and in some emerging economies. Economic policy remains as a supportive factor for growth in 2014-15 1.1 1.9 To reinforce the baseline scenario, policymakers have to tackle domestic vulnerabilities: banking issues and disinflation risks in the Eurozone, financial vulnerabilities in China, and private domestic demand in emerging economies 1.0 0.0 -0.6-0.4 -1.0 -2.0 -3.0 World Baseline US EMU 2015 2014 2013 2012 2015 2014 2013 2012 2015 2014 2013 2012 2015 2014 2013 2012 -4.0 BBVA-EAGLES The impact of FED’s tapering over global funding conditions, in the US and beyond, remains as a factor of uncertainty Nov-13 Page 14
  • 15. Global and Spanish Economic Outlook, February 2014 Index Section 1 Global economy: a gradual acceleration supported by the developed economies Section 2 Spain: upside risks for the first time since the beginning of the crisis Section 3 Commitment to the reforms is crucial to consolidate the improvement in the markets and increase potential growth Page 15
  • 16. Global and Spanish Economic Outlook, February 2014 The recovery of the Spanish economy is confirmed … Spain: GDP growth and MICA-BBVA forecasts (% QoQ) Source: BBVA Research based on INE 1.0 0.5 0.5 0.0 0.0 -0.5 -0.5 -1.0 -1.0 -1.5 -1.5 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 (f) 1.0 After three years in recession, domestic demand started to make a positive contribution to growth again in the second half of 2013… … as a consequence of improved fundamentals, less restrictive fiscal policy, reduced uncertainty and increased import substitution The available information points to growth of at least 0.4% in 1Q14 CI at 20% CI at 40% CI at 60% Data (f: MICA-BBVA Research forecast) Page 16
  • 17. Global and Spanish Economic Outlook, February 2014 … and, in spite of the uncertainty regarding the deficit in 2013 … Public sector: breakdown of the public deficit excluding aid to the financial sector (% GDP) Source: BBVA Research based on MINHAP The significant fiscal consolidation efforts in 2012 and 2013 … 14 12 3.0 10 5.2 8 -0.3 0.9 6 4 … have resulted in containment of the public deficit at around 7.0% of GDP 1.8 1.6 -0.7 9.1 0.0 7.0 6.8 5.8 2 5.1 2012 2013 (e ) 2014 (f) Deficit 2015 Fiscal effort Passive fiscal policy Deficit 2014 Fiscal effort Passive fiscal policy Deficit 2013 Fiscal effort Passive fiscal policy Deficit 2012 Fiscal effort Passive fiscal policy Deficit 2011 0 The wider the deviation from the target deficit for 2013, the greater the effort that will have to be made in 2014 2015 (f) Page 17
  • 18. Global and Spanish Economic Outlook, February 2014 … the risks are to the upside for the first time Spain: GDP growth forecasts, 2014 (% YoY) Source: BBVA Research based on Consensus Forecast Inc. 50 BBVA Research (Jan-14) 45 Relative frequency Economic policy decisions have eliminated the risk scenarios 40 The differential performance of the Spanish economy confirms this improvement in the trend 35 30 25 20 15 If these trends are confirmed, growth could be even stronger than we are forecasting 10 5 0 (< -1,2) (-1,2;-0,8) (-0,8;-0,4) (-0,4;0) (0;0,4) (0,4;0,8) (0,8;1,2) (>1,2) GDP Growth forecast July-2013 (mean: 0,2%) Feb-2013 (mean:0,3%) Jan-2014 (mean: 0.7%) Page 18
  • 19. Global and Spanish Economic Outlook, February 2014 Upside risks: 1. Exports will continue to expand Spain: growth and breakdown of goods exports by broad geographical area Source: BBVA Research based on Datacomex 12 60 6 50 0 40 -6 30 -12 20 -18 10 We expect the recovery to continue driven by the increase in exports -24 The deceleration in exports is a temporary phenomenon and will reverse in a scenario of stronger global growth The slowing momentum in EMs has been offset by the recovery in the EMU 0 EMU EAGLEs Nominal growth, average % yoy 1Q13 (LHS) Nominal growthl, Oct-Nov 2013 average % yoy (LHS) Share over total exports (%, RHS) Page 19
  • 20. Global and Spanish Economic Outlook, February 2014 Upside risks: 1. Exports will continue to expand Regions: average annual growth in exports of goods due to diversification (2009-2012) (%, Spain: weighted average) Box 3 Export growth is based on improvements in competitiveness, and above all, on diversification Source: BBVA Research 20 15 On average, 75% of the growth in exports during the crisis was due to product and geographical diversification 10 5 This export diversification prevented even greater negative GDP growth 0 Geographical diversification Combined effect CAN MUR AND AST CANT MAD CAT BC CLM VAL NAV SPA RIO EXT ARA BAL C&L GAL -5 Product diversification Page 20
  • 21. Global and Spanish Economic Outlook, February 2014 Upside risks 2. An increase in savings and financial wealth Spain: net real household financial wealth (Deflated by the private consumption deflator; seasonally adjusted data) Source: BBVA Research based on Bank of Spain and INE 1000 2Q12-3Q13: +24.8% The increase in corporate and household savings has been an essential part of the recoveries in Spain … 900 … that has helped in the deleveraging process and in the improvement in the financial situation of the private sector … 800 … and these, together with the stabilisation and improvement in the value of wealth, has driven an increase in consumption and investment 700 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 600 Real net financial wealth (billion €) Page 21
  • 22. Global and Spanish Economic Outlook, February 2014 Upside risks 3. More certainty and fewer financial tensions Spain: 10Y bond yield (Difference vs. our November 2013 forecast in bp) Source: BBVA Research Improved international perceptions of the Spanish economy have allowed Spain to reduce its dependence on ECB funding -108 -110 -112 -114 Reduced financial tensions are reflected in the economy with a lag of 6-9 months -116 -118 -120 A permanent 100bp drop in sovereign interest rates implies up to one percentage point more growth for the economy -122 -124 -126 -128 2014 2015 Page 22
  • 23. Global and Spanish Economic Outlook, February 2014 Upside risks 4. More dynamic investment Spain: exports and investment in equipment and machinery (2008=100) Source: BBVA Research based on INE The recovery we expect in the EMU and the continuing export growth … 140 130 120 110 … should translate into an increase in privatesector investment 100 90 80 In fact, the investment in equipment and machinery had grown 6.3% by 4Q13 70 Dec-99 Sep-00 Jun-01 Mar-02 Dec-02 Sep-03 Jun-04 Mar-05 Dec-05 Sep-06 Jun-07 Mar-08 Dec-08 Sep-09 Jun-10 Mar-11 Dec-11 Sep-12 Jun-13 Mar-14 Dec-14 Sep-15 60 Goods and services exports Page 23
  • 24. Global and Spanish Economic Outlook, February 2014 Upside risks 5. Improvement in new lending flows Spain: new lending and credit to households, NPISH and non-financial entities Source: BBVA Research based on Bank of Spain (February 2014) 40% The Spanish economy is going through an evitable deleveraging process … 30% 10% … that is compatible with new lending for financially viable projects 0% -10% -20% There has been a turning point and an improvement in corporate lending, which we expect to consolidate in 1H14 -30% Total Total Tendencia Trend Jan-13 Jan-12 Jan-11 Jan-10 Jan-09 Jan-08 Jan-07 Jan-06 Jan-05 -40% Jan-04 Yoy % change 20% Tendencia corregida Corrected trend Page 24
  • 25. Global and Spanish Economic Outlook, February 2014 Upside risks 6. Changes in the labour market Spain: LFS employment (Variation in annual average, %) Source: BBVA Research based on INE 1,5 1.1 1,0 1.0 Net job-creation has started sooner than we expected, partly as a reflection of wage moderation 0.4 0,5 0,0 Had labour institutions been in better shape at the beginning of the crisis, millions of job losses could have been avoided 0.0 -0,5 -1,0 -1,5 In 2014 employment will be created for the first time since the beginning of the crisis -2,0 -2,5 -3,0 -3,5 -3.1 -3.1 2013 Spain Outlook 4Q13 2014 2015 Spain Outlook 1Q14 Page 25
  • 26. Global and Spanish Economic Outlook, February 2014 2014: the start of the recovery Spain: GDP growth by region (% YoY) Source: BBVA Research In 2014 all the regions will return to positive growth 2.8 GAL 2.6 CLM Growth in 2015 2.4 MAD RIO 2.2 The progress made in correcting the imbalances and the exposure to external demand … CAN ARA MUR 2.0 EXT SPA 1.8 CNT 1.6 CAT VAL 1.4 NAV BASQ AND C&L … are the key to explaining the difference in the speed at which the different regions will start growing BAL AST 1.2 1.0 0.0 0.2 0.4 0.6 0.8 1.0 1.2 Growth in 2014 1.4 1.6 1.8 Page 26
  • 27. Global and Spanish Economic Outlook, February 2014 Index Section 1 Global economy: a gradual acceleration supported by the developed economies Section 2 Spain: upside risks for the first time since the beginning of the crisis Section 3 Commitment to the reforms is crucial to consolidate the improvement in the markets and increase potential growth Page 27
  • 28. Global and Spanish Economic Outlook, February 2014 The need to broaden the scope of the reform agenda GDP growth and job-creation Source: BBVA Research and Lebergott (1964) Level of employment at the beginning of the crisis =100 105 USA 1929-1940 USA., 2007-2014 EMU, 2007-2017 Spain, 2007-2025 The recovery in employment will be very sensitive to economic growth 100 The objective should be to introduce the necessary reforms to increase economic growth to close to or more than 2.5% 95 90 Unless this happens, job-creation will be limited and the recovery slow 85 80 Pico Peak 2 4 6 8 10 12 14 16 18 años years Assumptions for the USA and the EMU are consistent with BBVA Research´s scenario. The Spanish scenario has been built assuming both that producvity per worker rises 0,6% (as it was the case between 1992 and 2007) and that GDP grows on average 2,5. Page 28
  • 29. Global and Spanish Economic Outlook, February 2014 The ECB must ensure it achieves its inflation target Spain and EMU: inflation trend Box 1 (% YoY) Source: BBVA Research based on INE y Eurostat The ECB needs to converge with its inflation target more quickly, which would help Spain deleverage … 4,0 3,0 … while the Spanish economy needs to continue to improve competitiveness 2,0 1,0 The reforms that improve competitiveness and facilitate internal devaluation in Spain need to continue 0,0 dic-02 jun-03 dic-03 jun-04 dic-04 jun-05 dic-05 jun-06 dic-06 jun-07 dic-07 jun-08 dic-08 jun-09 dic-09 jun-10 dic-10 jun-11 dic-11 jun-12 dic-12 jun-13 dic-13 -1,0 Spain (Trimmed mean) Europe (core CPI) Page 29
  • 30. Global and Spanish Economic Outlook, February 2014 An efficient tax system and fiscal sustainability Box 2 Spain: unemployment and public deficit Source: BBVA Research based on INE and MINHAP 14% (2006) 18% (2013) Tax revenues dropped sharply in Spain as a consequence of the recession … 4 06 07 05 Budget deficit (% GDP) 2 0 04 03 01 02 00 -2 80 -4 98 89 81 90 83 91 08 -6 … and the fiscal consolidation process requires sufficient resources to ensure that Spain’s finances remain in good health… -1.8% 99 88 87 97 92 8284 96 86 94 85 93 95 12 13 -8 10 -10 11 … but with a structure that drives economic growth and job-creation, two key factors for reducing the deficit 09 -12 7 9 11 13 15 17 19 21 Unemployment rate (%) 23 25 27 Page 30
  • 31. Global and Spanish Economic Outlook, February 2014 The need to broaden the scope of the reform agenda 1. To continue the deleveraging and improvement in the finances of the Spanish economy: finalising the restructuring of the financial sector and attracting foreign direct investment 2. Public-sector reform, fiscal consolidation and long-term sustainability of public finances, with an efficient tax system that incentivises growth and jobcreation 3. Reforms to improve competitiveness, increase the attraction of Spain internationally in terms of physical, human and technological capital 4. To continue with the reforms that reduce the duality in the labour market, improve the way it functions and increase employability -> more and better-quality jobs Page 31
  • 32. Global and Spanish Economic Outlook February 2014
  • 33. Global and Spanish Economic Outlook, February 2014 Macroeconomic scenario Page 33
  • 34. Global and Spanish Economic Outlook, February 2014 Current disinflation in some advanced economies is comparable to the Great Recession episode Core inflation in some advanced economies (% y/y) Source: Haver and BBVA Research -2.0 US Japan Eurozone Jan-14 -2.0 Jul-13 -1.0 Jan-13 -1.0 Jul-12 0.0 Jan-12 0.0 Jul-11 1.0 Jan-11 1.0 Jul-10 2.0 Jan-10 2.0 Jul-09 3.0 Jan-09 3.0 Jul-08 4.0 Jan-08 4.0 UK Page 34

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