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Spain Consumption Outlook, 2nd semester 2013
 

Spain Consumption Outlook, 2nd semester 2013

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Rebalancing of global growth but not without risk. Higher contribution to growth by developed economies and lower deterioration in emerging markets ...

Rebalancing of global growth but not without risk. Higher contribution to growth by developed economies and lower deterioration in emerging markets
The Spanish economy has begun to grow moderately, underpinned by exports, and a fiscal adjustment that became better distributed over time
Private consumption, especially in the case of durable goods, has shown the first recovery signs following the improvement of its determining factors
A favorable pattern in consumer finance has allowed an increase in domestic demand
The insufficient adoption of new technologies by companies limits e-commerce growth in Spain
The ageing of the Spanish population might have a positive impact on household consumption in the coming decades

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    Spain Consumption Outlook, 2nd semester 2013 Spain Consumption Outlook, 2nd semester 2013 Presentation Transcript

    • Consumption Outlook Second half 2013 Madrid, December 18, 2013
    • Consumption Outlook December 18th, 2013 Main messages 1 Rebalancing of global growth but not without risk. Higher contribution to growth by developed economies and lower deterioration in emerging markets 2 The Spanish economy has begun to grow moderately, underpinned by exports, and a fiscal adjustment that became better distributed over time 3 Private consumption, especially in the case of durable goods, has shown the first recovery signs following the improvement of its determining factors 4 A favorable pattern in consumer finance has allowed an increase in domestic demand 5 The insufficient adoption of new technologies by companies limits e-commerce growth in Spain 6 The ageing of the Spanish population might have a positive impact on household consumption in the coming decades Page 2
    • Consumption Outlook December 18th, 2013 Contents Section 1 Rebalancing of global growth: economic strengthening in advanced countries and lower deterioration in emerging markets Section 2 Spain: growth returns, although at moderate rates. Commitment to reforms: key for consolidating the improvement in markets and increasing growth potential Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 Section 4 Durable goods: the worst part is over. Improvement in fundamentals, but uneven pattern in demand Section 5 Deconstructing two myths: 1) do we consume less as we get older?, 2) are Spanish products suitable for e-commerce? Page 3
    • Consumption Outlook December 18th, 2013 Section 1 Rebalancing of global growth Economic growth (%) Source: BBVA Research and Haver 8 6 4 4,8 5,2 Global recovery continues, with increasing support from advanced economies 3,6 2,9 2,3 1,6 2 Slowdown in emerging markets, particularly in Asia 1,1 0 -0,4 -2 Risks are less extreme, but still tilted to downside World Baseline USA EMU 2014 2013 2014 2013 2014 2013 2014 2013 -4 BBVAEAGLES Baseline Jul-13 Page 4
    • Consumption Outlook December 18th, 2013 Section 1 Rebalancing of global growth: improvement in advanced economies Global: manufacturing PMIs Source: BBVA Research based on Markit Economics data 60 Improved cyclical outlook in advanced economies … 58 56 54 … while waiting for improvements in GDP growth 52 50 48 Global Advanced economies Nov 13 Jul 13 Mar 13 Nov 12 Jul 12 Mar 12 Nov 11 Jul 11 Mar 11 Nov 10 Jul 10 Mar 10 46 BBVA Eagles Page 5
    • Consumption Outlook December 18th, 2013 Section 1 Rebalancing of global growth: lower deterioration in emerging markets BBVA Research Financial Tensions Index: developed and emerging economies Source: BBVA Research 1.3 0.04 1.1 0.02 0.9 0.00 0.7 -0.02 0.5 -0.04 0.3 -0.06 0.1 -0.08 -0.1 -0.10 -0.3 -0.12 -0.5 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 0.06 After the slowdown in growth that followed the announced imminent cut in the pace of asset purchases by the Fed (tapering), … …, financial tensions eased with its subsequent delay … …, curbing the capital flight in some emerging markets and improving their outlook Emerging economies (LHS) Developed economies (RHS) Page 6
    • Consumption Outlook December 18th, 2013 Section 1 Risks are less extreme, but still tilted to the downside Disorderly exit from QE or lack of fiscal agreement in the US. Higher interest rates and risk aversion Adjustment in China and other EM Sharp slowdown as a collateral effect of political issues in emerging countries Euro crisis Lack of decisive progress to strengthen the banking union and/or risks in ongoing bailout programs = Page 7
    • Consumption Outlook December 18th, 2013 Contents Section 1 Rebalancing of global growth: higher contribution by developed economies and lower deterioration in emerging markets Section 2 Spain: growth returns, although at moderate rates. Commitment to reforms: key for consolidating the improvement in markets and increasing growth potential Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 Section 4 Durable goods: the worst part is over. Improvement in fundamentals, but uneven pattern in demand Section 5 Deconstructing two myths: 1) do we consume more as we get older?, 2) are Spanish products adequate for e-commerce? Page 8
    • Consumption Outlook December 18th, 2013 Section 2 The Spanish economy bottomed out in 2013 Spain: GDP growth and MICA-BBVA forecasts (q/q%) Source: BBVA Research, based on National Institute of Statistics data 1.0 1.0 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 (f) 0.5 3Q13: domestic demand once again made a positive contribution to growth after 3 years "in the red"... …, while external demand remained on track Reasons: lower financial tensions, a less contractive fiscal policy and dynamic exports CI at 20% CI at 40% CI at 60% Observed (f: MICA BBVA Research forecast) 4Q13: information available points to growth of around 0.3% Page 9
    • Consumption Outlook December 18th, 2013 Section 2 Recovery is following the stylized facts of previous cycles Variables before the cycle . Export growth Gross operating surplus Investment in machinery and equipment New credit operations (flow) = . Stable GDP growth Stable Employment growth Lagging variables Stabilizing Growth in the stock of credit Declining Page 10
    • Consumption Outlook December 18th, 2013 Section 2 Growth in exports: exceptional performance in Eurozone Total exports (cumulative variation 1Q12-3Q13 in %, swda) (*): Data to 2Q13 Source: BBVA Research based on Eurostat Spain Spanish exports have grown in the last year despite the recession in the EU Portugal Netherlands Switzerland Austria This is partly due to an increase in the share of exports to BBVA-EAGLES countries and other developed economies... Euro area European Union Belgium Germany Denmark ... but also to gains in Spanish competitiveness in both price and quality Italy United Kingdom Ireland* France Finland Sweden Norway -5% 0% 5% 10% 15% Page 11
    • Consumption Outlook December 18th, 2013 Section 2 Wage moderation and increased productivity improve companies' positions Spain: net foreign borrowing (-) / lending (+) needs (% GDP) Source: BBVA Research, based on National Institute of Statistics data 10% The maintenance of savings in the private sector and the reduction of investment... 5% ... have allowed a deleveraging process against the rest of the world over the last 5 years... 0% ... improving the position of companies and allowing them to start investing once decreased uncertainty consolidates -5% -10% -15% 2007 Households Financial and nonfinancial companies 2013 (f) Public sector Total Page 12
    • Consumption Outlook December 18th, 2013 Section 2 Greater strength of investment … Spain: exports and investment in equipment and machinery (2008=100) Source: BBVA Research, based on National Institute of Statistics data Expected recovery in the Eurozone and dynamic exports ... 140 130 120 ... should lead to a recovery of investment in equipment 110 100 90 In fact, in the first three months of the year it grew 5.3% 80 70 Dec 99 Jun 00 Dec 00 Jun 01 Dec 01 Jun 02 Dec 02 Jun 03 Dec 03 Jun 04 Dec 04 Jun 05 Dec 05 Jun 06 Dec 06 Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 60 Exports GFKF: Equipement and Machinary Page 13
    • Consumption Outlook December 18th, 2013 Section 2 Improvements in credit flows Spain: new credit operations and repayments to the domestic private sector (Trend) Source: BBVA Research based on Bank of Spain The Spanish economy has to go through an inevitable deleverage process... 350 ... which is compatible with the provision of credit for solvent projects 250 200 Credit flows are expected to recover starting in the first half of 2014 150 New operations Mar-17 Mar-16 Mar-15 Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Mar-04 100 Mar-03 € billions 300 Repayments Page 14
    • Consumption Outlook December 18th, 2013 Section 2 Fiscal consolidation: lower efforts in the short term General government: public deficit breakdown excluding aid to the financial sector (% GDP) Source: BBVA Research based on Ministry of Finance 14 The fiscal effort has been significant in 2012 and 2013... 12 2.6 10 4.8 8 1.6 6 4 ... and will ensure that public deficit remains at around 6.8% of GDP 1.7 -0.1 1.0 9.1 6.8 6.8 5.8 Deficit 2011 2012 2013 Deficit targets that are more consistent with recovery will lead to GDP growth in 2014 Deficit 2014 Fiscal effort Pasive fiscal policy Deficit 2013 Fiscal effort Pasive fiscal policy Deficit 2012 Pasive fiscal policy 0 Fiscal effort 2 2014 Page 15
    • Consumption Outlook December 18th, 2013 Section 2 The labor market is stabilizing Spain: short-term employment-to-GDP elasticity (q/q %) Reduced VAR in first differences. 72-quarter rolling window Source: BBVA Research, based on National Institute of Statistics data 1,0 Job destruction has slowed down, in part as a result of wage moderation 0,8 If labor institutions had been more appropriate at the start of the crisis the destruction of a million jobs could have been avoided 0,6 0,4 The elasticity of employment to GDP has increased during the crisis. How will it behave during the recovery? 0,2 0,0 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 -0,2 Page 16
    • Consumption Outlook December 18th, 2013 Section 2 The real-estate cycle: "This time is different" Spain: residential investment, compared with previous recessions (Maximum during expansion = 100) Source: BBVA Research, based on National Institute of Statistics data The recovery of investment in the real-estate sector tends to run ahead of the cycle... 140 130 120 ... however, the current over-supply will make it unlikely that this time it will accompany the recovery (effect vs cause) 110 100 90 The reform process must also ensure an efficient redistribution of resources between sectors 80 70 60 50 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t+9 t+10 t+11 t+12 t+13 t+14 t+15 t+16 t+17 t+18 t+19 t+20 t+21 t+22 t+23 t+24 t+25 t+26 t+27 t+28 t+29 t+30 t+31 t+32 40 Quarters Mar-80 Sep-90 Dec-06 Page 17
    • Consumption Outlook December 18th, 2013 Section 2 2014: the start of recovery Spain: GDP growth by autonomous region (% y/y) Source: BBVA Research 1.6 CYL 1.4 Growth in 2014 GAL AST ARA C. IS. Regional variations are due to the heterogenous fiscal efforts in 2012, the uneven target deficits for 2013 … BASQ CLM NAV SPA 0.8 0.6 B. IS. RIO 1.2 1.0 Spain has bottomed out in 2013 with a GDP fall of 1.3% and will begin to grow in 2014 by 0.9% MAD EXT CAT AND CNT … and the exposure to external demand 0.4 VAL MUR 0.2 0.0 -2.0 -1.8 -1.6 -1.4 -1.2 -1.0 -0.8 -0.6 -0.4 -0.2 0.0 Growth in 2013 Page 18
    • Consumption Outlook December 18th, 2013 Section 2 The need of continuing the reform processes Spain: GDP growth in different scenarios (2008=100) Source: BBVA Research, based on National Institute of Statistics and IMF 110 Relatively negative scenarios such as those of the IMF would imply more than one lost decade 105 100 The objective would be to implement the reforms needed in order to increase the economy's growth potential 95 90 85 In their absence, the unemployment rate will remain high and recovery will be slow 2018 (f) 2017 (f) 2016 (f) 2015 (f) 2014 (f) 2013 (f) 2012 2011 2010 2009 2008 80 Growth forecast 1.5% yoy Growth forecast 2.5% yoy IMF's growth forecast Page 19
    • Consumption Outlook December 18th, 2013 Contents Section 1 Rebalancing of global growth: higher contribution by developed economies and lower deterioration in emerging markets Section 2 Spain: growth returns, although at moderate rates. Commitment to reforms: key for consolidating the improvement in markets and increasing growth potential Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 Section 4 Durable goods: the worst part is over. Improvement in fundamentals, but uneven pattern in demand Section 5 Deconstructing two myths: 1) do we consume more as we get older?, 2) are Spanish products adequate for e-commerce? Page 20
    • Consumption Outlook December 18th, 2013 Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 Spain: private consumption growth (%) Source: BBVA Research based on the National Institute of Statistics 3 Factors that determine consumption: Disposable income: • Change of cycle in the labor market 2 1 0 Wealth: • Increase in financial wealth -1 -2 Likelihood to consume: • Lower uncertainty -3 -4 -5 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 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 -6 % y/y Debt: • Deleveraging of the private sector • Deleveraging of the public sector Average Page 21
    • Consumption Outlook December 18th, 2013 Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 Spain: change in employment and unemployment rate (%) Source: BBVA Research based on the National Institute of Statistics 0.0 30 -1.5 24 -3.0 18 -4.5 1. Change of cycle in the labor market 12 -6.0 6 -7.5 The labor market reform has helped to rebalance the adjustment between quantities (employment) and prices (wages) … …, which has helped to avoid a larger decline in the number of employed people over the last year Sustained employment recovery will come in 2H14…, but increases in employment can also happen in 1H14 0 2008 2009 2010 Employment (% lhs.) 2011 2012 2013 2014 Unemployment rate (% rhs.) Page 22
    • Consumption Outlook December 18th, 2013 Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 Spain: real net financial wealth (Deflated by the consumption deflator, swda figures, %) 2. Increase in financial wealth Source: BBVA Research based on BoS and National Institute of Statistics 20 2Q12-2Q13: +17,4% 15 The easing of financial tensions has helped stock prices and has reduce financing costs → ∆ of net financial wealth 10 5 0 -5 BBVA Research estimates: Quarterly ∆ in real net financial wealth of 1% → Cumulative 0.2% ∆ of private consumption over the next 4 quarters -10 -15 -20 -25 % yoy %qoq Jun-13 Mar-13 Sep-12 Dec-12 Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Jun-10 Sep-10 Mar-10 Sep-09 Dec-09 Jun-09 Mar-09 Dec-08 Sep-08 Jun-08 Mar-08 -30 Real net financial wealth: ∆17.4% since 2Q12 → +3.2 pp of consumption growth until 2Q14 Page 23
    • Consumption Outlook December 18th, 2013 Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 BBVA Business Trends Survey: expectations of the economic situation (Net responses. A value <0 indicates a worsening) 3. Less uncertainty, both in macroeconomic terms… Source: BBVA Research 60 The perception about the economic situation has improved over the last six months ... 40 20 … more than it was expected six months ago 0 -20 -40 1H14: positive outlook -60 -80 -100 1H11 2H11 Expectations 1H12 2H12 1H13 2H13 1H14 (f) Situation with respect to last semester Page 24
    • Consumption Outlook December 18th, 2013 Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 Spain: impact of a 5-point confidence increase* on the level of consumption (%) (*) Perception of the household regarding its future economic situation 3. …, and in microeconomic terms Source: BBVA Research, based on National Institute of Statistics and European Commission 0,30 Lower uncertainty encourages consumption at the expense of saving 0,3 0,25 0,2 0,20 0,15 0,1 Household´s saving rates will remain at historically low levels 0,10 0,05 0,0 0,00 0,0 0,0 -0,05 1st year +5 points permanent 2nd year 3rd year +5 points temporary Page 25
    • Consumption Outlook December 18th, 2013 Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 Spain: new consumer financing operations (% y/y of third-order moving average) 4. Household deleveraging (I) Source: BBVA Research based on Bank of Spain 60 New consumer credit operations have grown between January and October due to the increase in mid and long term financing … 40 20 0 …, within a context of deleveraging and high interest rates -20 -40 Leverage ratio (over GDP): in line with European economies (6.1%) -60 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 -80 Total < 1 year 1-5 years > 5 years Page 26
    • Consumption Outlook December 18th, 2013 Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 BBVA Business Trends Survey: expectations of supply and demand for consumer credit (Net responses. A value of <0 indicates a worsening) 4. Household deleveraging (II) Source: BBVA Research 45 Recovery in consumer finance was already noted in the 1H13 Business Trends Survey 30 15 0 The 2H13 Business Trends Survey suggests that it has evolved better than expected … -15 -30 -45 …, and it will continue to do so, at least during the first half of 2014 -60 -75 -90 2H10 1H11 2H11 1H12 2H12 1H13 2H13 Supply 1H14 (f) Supply expectations Demand Demand Expectations Page 27
    • Consumption Outlook December 18th, 2013 Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 Spain: response to a 2-pp increase in VAT (Deviation from trend, %) Source: BBVA Research. Simulations with REMS 0.8 VAT hike in T0 0.6 5. Consequences of public sector deleveraging The increase in VAT alters the inter-temporal pattern of household consumption … 0.4 0.2 …, and has permanent effects on its level of expense 0.0 -0.2 -0.4 Nevertheless, the transfer of the increase in VAT to prices was limited (of around 1 point) -0.6 -0.8 -1.0 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Quarters GDP Consumption Page 28
    • Consumption Outlook December 18th, 2013 Contents Section 1 Rebalancing of global growth: higher contribution by developed economies and less deterioration in emerging markets Section 2 Spain: growth returns, although at moderate rates. Commitment to reforms: key for consolidating the improvement in markets and increasing growth potential Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 Section 4 Durable goods: the worst part is over. Improvement in fundamentals, but uneven pattern in demand Section 5 Deconstructing two myths: 1) do we consume more as we get older?, 2) are Spanish products adequate for e-commerce? Page 29
    • Consumption Outlook December 18th, 2013 Section 4 Demand for durable goods: the worst part is over Spain: availability of consumer goods (swda data, 1Q08 = 100)) Source: BBVA Research, based on Ministry of the Economy VAT hike VAT hike 100 Consumption of durable goods may have bottomed out … 80 …, after the collapse in 4Q12 and 1Q13 … 60 40 …, triggered by the consequences of the VAT hike and the elimination of the public employee bonus 20 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 0 Consumer goods Food products Durables Other non-durables Page 30
    • Consumption Outlook December 18th, 2013 Section 4 Demand for durable goods: the worst part is over Vehicles: sales pattern shaped by the PIVE (Efficient Vehicle Incentives Program) Spain: private car registrations per channel (swda data, 3MA, Jan-09 = 100) Source: BBVA Research based on ANFAC and Ganvam data Plan 2000E End of 2000E Plan + ∆VAT 200 ∆VAT + PIVE The private channel is responsible for the increase in registrations in 2013 … 175 150 …, accompanied by the business channel in 2H13 125 100 75 The PIVE has limited the negative impact of the VAT hike (less than 680,000 registrations in 2013 without it) … 50 25 Company cars Aug-13 Apr-13 Dec-12 Aug-12 Apr-12 Dec-11 Aug-11 Apr-11 Dec-10 Aug-10 Apr-10 Private Renting Dec-13 (f) Total Dec-09 Aug-09 Apr-09 Jan-09 0 …, but it has not prevented the continued ageing of the vehicle fleet (52.3% of private cars are 10 years old or older) and the increase in the UC/NC ratio (2.2) Page 31
    • Consumption Outlook December 18th, 2013 Section 4 Demand for durable goods: the worst part is over Spain: car registrations Source: BBVA Research 1200 10 600 -10 300 2013: around 720,000 units 0 -20 0 % yoy 900 Thousands of cars Growth in car registration dependent on the PIVE being maintained -30 2008 2009 2010 2011 2012 2013 2014 L/T Actual actual % yoy (RHS) Forecast 2014: shaped by whether the bonus will be maintained or eliminated (∆7.5% if the PIVE is extended) The improvement in its determining factors (pcGDP, unemployment and oil relative prices) could offset the impact of the elimination of the PIVE forecasted %yoy (RHS) Page 32
    • Consumption Outlook December 18th, 2013 Section 4 Demand for durable goods: the worst part is over Spain: motorcycle registrations (swda data, 1Q08 = 100) Source: BBVA Research, based on DGT and Anesdor Moto-E Plan 140 Motorcycles: seven years later, light at the end of the tunnel The market could have bottomed out in 1H13 120 100 80 However, there will be fewer than 97 thousand motorcycles registered at the end of 2013 (-4.7%) 60 40 20 mar-08 jun-08 sep-08 dic-08 mar-09 jun-09 sep-09 dic-09 mar-10 jun-10 sep-10 dic-10 mar-11 jun-11 sep-11 dic-11 mar-12 jun-12 sep-12 dic-12 mar-13 jun-13 sep-13 Dec-13 (f) 0 Registrations In 2014, 105,000 units could be reached if the fundamentals improve as expected Motorcycle fleet Page 33
    • Consumption Outlook December 18th, 2013 Section 4 Demand for durable goods: the worst part is over Spain: business figures for furniture and housing investment (swda data, 1Q08 = 100)) Furniture: awaiting housing demand Source: BBVA Research, based on National Institute of Statistics data 100 Stable sales, prices relatively low (-0.9% since Jun-13) 90 80 70 BBVA Research estimates: 1% ∇ q/q in nominal housing investment → 0.6% ∇ cumulative sales 60 50 40 The expected recovery in housing demand during 2H14 will help to encourage furniture consumption 30 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 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 20 Furniture(sales volume, trend) Nominal Housing Investment Real Housing Investment Page 34
    • Consumption Outlook December 18th, 2013 Section 4 Demand for durable goods: the worst part is over Spain: sales of electrical appliances by household (% y/y of number of units) Source: BBVA Research, based on ANFEL data White line: positive signs…, when the 2nd derivative is analyzed Sales Jan-Oct 2013: -7.4% y/y (-13.9% in 2012) Fridges 0 Total -10 Freezers -20 -30 Counter Tops Washing Machines Sales were lower in all electrical appliance categories, but all to a lesser degree than in 2012 (except fridges and freezers) -40 Ovens Driers Cookers 2012 Relative price fall: -1.6% between June and October Dish Washers Jan-Oct 2012 Jan-Oct 2013 Page 35
    • Consumption Outlook December 18th, 2013 Section 4 Demand for durable goods: the worst part is over Spain: real retail sales of brown goods (swda data, Jan-11 = 100) Brown lines: falling penetration rates Source: BBVA Research based on Eurostat ∆VAT 105 Sluggish demand: digesting the purchases that were brought forward before the VAT increase 100 95 90 85 The across-the-board fall in prices has not prompted increased penetration of Spanish homes in 2013 ... 80 75 70 65 Consumer Electronics ICT Oct-13 Jul-13 Apr-13 Jan-13 Oct-12 Jul-12 Apr-12 Jan-12 Oct-11 Jul-11 Apr-11 Jan-11 60 …, except for mobile devices: tablets (16.3%) and mobile telephones (96.1%) Retail trade (exc food) Page 36
    • Consumption Outlook December 18th, 2013 Contents Section 1 Rebalancing of global growth: higher contribution by developed economies and less deterioration in emerging markets Section 2 Spain: growth returns, although at moderate rates. Commitment to reforms: key for consolidating the improvement in markets and increasing growth potential Section 3 Household consumption: signs of recovery in 2H13, growth in 2014 Section 4 Durable goods: the worst part is over. Improvement in fundamentals, but uneven pattern in demand Section 5 Dismantling two myths: 1) do we consume more as we get older?, 2) are Spanish products adequate for e-commerce? Page 37
    • Consumption Outlook December 18th, 2013 Section 5 Dismantling two myths: 1) do we consume more as we get older? No Spain: average consumption per household by main breadwinner's age. 2007 and 2012 Source: BBVA Research based on National Institute of Statistics (Household budget survey) Box 1 The Spanish population has aged over the last four decades and will continue to do so in the coming decades Dependency ratio: 16.5% in 1973; 26.7% in 2013; 72.4% (f) in 2050 10.5 10.3 10.1 What consequences this ageing have on consumption spending in Spanish homes? 9.9 9.7 Age of the household´s main breadwinner 2007 78-80 75-77 72-74 69-71 66-68 63-65 60-62 57-59 54-56 51-53 48-50 45-47 42-44 39-41 36-38 33-35 30-32 27-29 9.5 24-26 LN(Household consumption in 2011 €) 10.7 The cross section data seems to suggest that the consumption by age has an inverted U shape … 2012 Page 38
    • Consumption Outlook December 18th, 2013 Section 5 Dismantling two myths: 1) do we consume more as we get older? No Spain: relative consumption per household by age and cohort Consumption per household (2011€ ) 26 years = 1 Source: BBVA Research based on National Institute of Statistics (ECPF-EPF) Age effect 2.0 1.8 …, however, this result is not caused by ageing, but by the permanent income (cohort), the size and composition of the household 1.6 1.4 1.2 1.0 0.8 0.6 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 Age of the main breadwinner BBVA Reseach estimates that consumption is an increasing and concave function of age Cohort effect 1.0 0.8 ‘At each age, we consume more than our parents and less than our children will do’ → ageing might have positive effects on household spending 0.6 0.4 0.2 Birth cohort 1920-1922 1923-25 1926-28 1929-31 1932-34 1935-37 1938-40 1941-43 1944-46 1947-49 1950-52 1953-55 1956-58 1959-61 1962-64 1965-67 0.0 1968-1970 Consumption per household (2011€ ) Birth year 1971- 1973 = 1 Box 1 Page 39
    • Consumption Outlook December 18th, 2013 Section 5 Dismantling two myths: are Spanish products adequate for e-commerce? Yes Spain vs Europe: a breakdown of the digital gap (Scale from 1 (minimum) to 7 (maximum), 2013) Box 1 Source: BBVA Research based on WEF 7 The use of new technologies is substantially lower in Spain than in other advanced economies … 6 5 4 3 2 … particularly amongst companies ... Spain Germany Innovation environment Skills Social Impact Government usage Infrastructure and digital content Individual usage Political and regulatory environment Economic impact Business usage Affordability 1 …, which limits the expansion in e-commerce Sweden Page 40
    • Consumption Outlook December 18th, 2013 Section 5 Dismantling two myths: are Spanish products adequate for e-commerce? Yes Companies selling online, 2012-13 (Percentage of companies with at least 10 employees where online sales are at least1% of their total sales) Source: BBVA Research based on Eurostat Box 2 50 In addition to the lack of resources, there are idiosyncratic factors that hamper e-commerce in Spain 40 30 20 In particular, the belief that the product is not adequate to be sold electronically 10 Business size Spain Administrative services Professional activities Real State ICT Transportation Retail Construction Energy Manufacturing 250 or more 50-249 10-49 1-9 Total 0 However, the % of companies that sale online in Spain is lower than in leading countries, regardless of the size or sector of activity (lack of innovation and deficit of human capital) Business sector Germany Page 41
    • Consumption Outlook December 18th, 2013 In short ... 1 More balanced composition of global growth. Risks are less extreme, but still tilted to downside 2 The Spanish economy has begun to grow following the stylized facts from previous cycles 3 Private consumption is rising steadily, underpinned by the improvement in its determining factors and by improved financing … 4 …, but no euphoria: fundamentals are still weak, households are still indebted 5 Durable goods: the worst part is over 6 E-commerce: a question of business survival 7 In the long term, the demographic transition could favor consumption Page 42
    • Consumption Outlook Second half 2013 Madrid, December 18, 2013
    • Consumption Outlook December 18th, 2013 Annex Section 2 Scenario 2013-2014: start of recovery Spain and Europe: macroeconomic forecasts Source: BBVA Research based on official bodies (% YoY) Households final consumption expenditure General government final consumption exp. Gross fixed capital formation (G.F.C.F.) Equipment and cultivated assets Equipment and machinery Housing Other constructions Changes in inventories (*) Domestic Demand (*) Exports Imports External Demand (*) GDP mp 20 1 0 20 1 1 20 1 2 20 1 (f) 3 20 1 (f) 4 Spain 0 .1 1 .5 -5.5 4.3 5.0 -1 .4 1 -8.4 0 .3 -0 .6 1 .7 1 9.3 0 .4 EMU 1 .0 0 .6 -0 .6 5.6 5.7 -3.0 -6.1 0 .6 1 .2 1 .4 1 9.8 0 .7 Spain -1 .2 -0 .5 -5.4 5.3 5.5 -1 2.5 -9.2 -0 .1 -2.1 7.6 -0 .1 2.1 EMU 0 .3 -0 .1 1 .7 4.7 4.7 -0 .3 -0 .2 0 .2 0 .7 6.7 4.6 0 .9 Spain -2.8 -4.8 -7.0 -3.9 -3.9 -8.7 -1 .6 0 0 .0 -4.1 2.1 -5.7 2.5 EMU -1 .4 -0 .5 -3.8 -4.2 -4.2 -3.4 -4.9 -0 .5 -2.2 2.7 -0 .8 1 .5 Spain -2.6 -1 .7 -6.4 1 .0 1 .1 -9.0 -1 2.6 0 .0 -3.1 4.6 -1 .0 1 .8 EMU -0 .5 0 .2 -3.6 -3.8 -3.8 -3.0 -5.7 0 .0 -1 .0 1 .7 0 .4 0 .6 Spain 0 .1 -1 .6 0 .7 6.5 6.5 -0 .7 -5.3 0 .0 -0 .1 6.3 3.4 1 .1 EMU 0 .7 0 .4 2.2 3.4 3.4 2.0 -0 .9 0 .0 0 .8 3.9 3.7 0 .3 -0 .2 1 .9 0 .1 1 .6 -1 .6 -0 .6 -1 .3 -0 .4 0 .9 1 .1 0 .8 1 .8 -2.3 20 .1 -4.5 61 .7 -9.6 1 .8 3.0 2.2 2.7 -0 .5 1 .1 0 0 .0 85.4 -6.2 1 .6 2.0 1 .0 2.0 -1 .9 21 .6 -3.8 70 .4 -9.1 3.2 2.4 1 .7 1 .8 0 .3 1 .2 0 0 .1 87.3 -4.1 2.7 2.9 -1 .2 -0 .4 -4.5 25.0 -1 .1 85.9 -6.8 2.4 2.9 -0 .5 -0 .2 -0 .7 1 .4 1 1 .2 90 .6 -3.7 2.5 2.3 -0 .9 0 .0 -3.1 26.3 1 .2 94.4 -6.8 1 .5 0 .6 -0 .2 0 .1 -0 .9 1 2.0 2.1 94.5 -2.8 1 .5 1 .3 1 .0 1 .4 0 .0 25.6 1 .8 98.4 -5.8 1 .1 1 .3 1 .0 1 .1 0 .1 1 2.0 2.1 94.8 -2.4 1 .4 1 .4 Pro-memoria GDP excluding housing GDP excluding contruction Total employment (LFS) Unemployment rate (% Active pop.) Current account balance (% GDP) Public debt (% GDP) (**) Public deficit (% GDP) CPI (average) CPI (end of period) (*) Contribution to GDP Growth (**) Excluding aid to the banking sector in Spain (f): forecast Page 44