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Spain Consumption Outlook
 

Spain Consumption Outlook

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Growth in Spain and Europe is lagging behind that of the global economy. ...

Growth in Spain and Europe is lagging behind that of the global economy.

Weak fundamentals mean that consumption, especially of durable goods, is expected to decline.

Because of lingering financial stress, high default rates, and, in particular, the expectation of weak demand, consumer credit is not likely to rise in the short term.

Worsening household expectations accounts for most of the fall in demand for consumer credit during the current crisis.

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    Spain Consumption Outlook Spain Consumption Outlook Presentation Transcript

    • Consumption OutlookMadrid, 29 May 2012
    • Consumption Outlook, 29 May 2012Key themes1 Europe decoupling from the global economy growth while the region continues to await a long-term plan to boost economic activity and allow sovereign risk to be spread in exchange for structural reform and better coordination2 Spains GDP is still expected to contract in 2012 (by 1.3%), before gradually recovering in 2013. However, this outlook now appears less certain3 Building up confidence now depends on the design, execution, and communication of a credible set of reforms4 Weaker drivers point to declining consumption in 2012 and the first half of 2013, especially for durable goods5 Lingering financial stress and high default levels, and, in particular, the expectation of weak demand do not point to an increase in consumer credit in the short term6 Worsening expectations by households account for 80% of the fall in demand for consumer credit in the current crisis Page 2
    • Consumption Outlook, 29 May 2012ContentsSection 1International environment:continued global growth and persistent risks in EuropeSection 2Spain: recession confirmed, although it is not worsening. Ongoing reforms will increasegrowthSection 3Consumption: weaker drivers point to declining consumption in 2012 and the first half of2013Section 4Demand for durable goods: is there any? Page 3
    • Consumption Outlook, 29 May 2012Section 1Europe decoupling from global growthGDP growth (% yoy)Source: BBVA Research 7 6.4 The debt crisis continues, with Portugal under 5.8 the spotlight and concerns about Spain 6 5 4.0 High levels of financial stress in Europe, with a risk of a tightening of credit 4 3.6 3 2.3 2.2 Stability Treaty: towards Maastricht 2.0 2 More emphasis on growth 0.9 1 Expansive, yet differing, monetary policies by0 the Fed, the Bank of Spain, and the ECB -0.2 -1 2012 2013 2013 2012 2012 2012 2013 2013 Global EMU US EAGLES A slow, disparate, and vulnerable recovery May-12 Feb-12 Page 4
    • Consumption Outlook, 29 May 2012Section 1The European crisis continues Significant progress... ... Although significant challenges remain Restructuring Greek debt and moving up the ESM 1. Uncertainty in Greece Provision of long-term liquidity by the ECB 2. Need for an effective firewall Reforms in Portugal, Spain, and Italy 3. Growth plan Approval of the Stability Treaty 4. A clear roadmap to "another" fiscal union ESM may indirectly contribute to capitalising financial 5. Need for greater financial integration institutions Insufficient progress → Risk continues to rise Page 5
    • Consumption Outlook, 29 May 2012Section 11. Uncertainty in Greece and PortugalGreece and Portugal: public debt forecasts (% GDP)Source: BBVA Research and IMF180 Greece: ambitious targets, but uncertainty160 following elections, and a deep recession140 Portugal: despite significant progress, there is120 no guaranteeing Greeces return to capital markets in 2013100 80 The risk of setbacks remains high 60 40 2030 2020 2026 2029 2027 2024 2025 2028 2010 2011 2022 2017 2014 2015 2016 2013 2018 2019 2021 2012 2023 Portugal Greece** Scenario for Greece: assumes 95% of bondholders will participate in the haircut, 3%growth in 2015, and a primary surplus at 4.5% of GDP starting in 2014 (2.4% primarydeficit in 2011) Page 6
    • Consumption Outlook, 29 May 2012Section 12. Need for an effective firewall The debate centres on the amount of resources available, but it encompasses much more: New lending capacity: €500bn (+ €200bn already committed by the EFSF) The EFSF can continue to lend through mid-2013, so as to enable the capitalisation of the ESM The increase in IMF funds (€330bn) What is more important is that the available funds be used efficiently: they should not crowd out private demand Page 7
    • Consumption Outlook, 29 May 2012Section 13. Agenda for growth An agenda for growth that is compatible with fiscal adjustment Clear roadmap for the future of EMU Balance between growth and austerity: reforms in exchange for a strategy focused on growth Gradual fiscal adjustment with multi-year plans Focus on structural deficits as called for in the Treaty Short-term objectives: avoiding the risk of an austerity-recession downward spiral and clearing up the uncertainty over the solvency of sovereign debt Page 8
    • Consumption Outlook, 29 May 2012Section 14. Greater progress towards fiscal union From the Stability Treaty... ...to fiscal union Despite difficulties in estimating the volume, Eurobonds: a good mechanism for this places the right emphasis on structural mutualising risk adjustment... ...but also raises doubts about how and when to The "blue" and "red" bond proposal apply the "extraordinary circumstances" clause maintains a degree of market discipline Not ambitious enough to elicit an assertive A union with temporary (rather than move from the ECB hardliners and Germany? permanent) transfers would be sufficient Page 9
    • Consumption Outlook, 29 May 2012Section 15. Greater financial integrationBanking system: Euro-zone sovereign Objective: to eliminate interaction ofbondholdings (% of assets)Source: BBVA Research based on ECB data sovereign risk and bank risk8,07,5 Indirect ECB intervention in the sovereign bond7,0 market via banks6,56,0 Increased bank exposure to sovereign debt5,5 heightens the potential negative for feedback between the two5,04,54,0 Emphasises the need for a definitive solution to the doubts about sovereign solvency Jul 10 Mar-10 Jul-11 Nov-10 May-10 Mar-12 Sep-10 Mar-11 Jan-10 Nov-11 May-11 Jan-12 Jan-11 Sep-11 Spain Italy Page 10
    • Consumption Outlook, 29 May 2012ContentsSection 1International environment:continued global growth and persistent risks in EuropeSection 2Spain: recession confirmed, although it is not worsening. Ongoingreforms will increase growthSection 3Consumption: Weaker drivers point to declining consumption in 2012 and the first half of2013Section 4Demand for durable goods: is there any? Page 11
    • Consumption Outlook, 29 May 2012Section 2Main changes in the economic scenario in 2012 Main drivers of the macroeconomic scenario Source: BBVA Research Growth forecast 3 months ago -1.3% 1. 1Q and 2Q confirm the scenario 2. Rising oil prices New factors 3. Increased financial stress 4. Unprecedented fiscal adjustment due to the deviation in 2011 5. LEP and the Supplier Payment Plan 6. Labour market reform and financial reform 2012 growth forecast still intact, but uncertainty increases -1.3% Page 12
    • Consumption Outlook, 29 May 2012Section 21. Available data confirm the scenarioSpain: real GDP growthand forecasts based on MICA-BBVA model (%, qoq)Current forecast: 25 MaySource: BBVA Research The Spanish economy entered a technical 1.5 1 .5 recession in 1Q12... 1.0 1.0 0.5 0.5 ...although the rate of slowdown did not worsen in comparison with 4Q11 0.0 0.0 -0.5 -0.5 Published data indicate that 2Q12 growth is -1.0 -1 .0 likely to have remained negative -1.5 -1.5 4Q10 4Q11 1Q10 1Q11 2Q10 3Q10 3Q11 2Q09 3Q09 2Q11 1Q12 4Q09 2Q12 CI at 20% CI at 40% CI at 60% Employment continues to be hindered by the MICA-BBVA point estimation (55% of data for 2Q12) negative outlook for growth Actual (BBVA Research official forecast for 2Q12) Page 13
    • Consumption Outlook, 29 May 2012Section 22. Hike in oil pricesSpain: impact of recent oil price recovery on business Negative, but limited, impactactivity and prices(deviation from previous scenario)Source: BBVA Research0.8 Rise in oil prices result of both supply-side and demand-side factors0.60.4 0.20.0 Will have a temporary effect on long-term trends-0.2-0.4-0.6 No contractive reaction expected in monetary-0.8 policy-1.0 2012 2013 2012 2013 GDP (% yoy) CPI (% yoy) Supply Precautionary demand Global demand Total Page 14
    • Consumption Outlook, 29 May 2012Section 23. Increased financial stressSpain: balance of payments and capital flows(Cumulative 12-month, % of GDP) It is liquidity, not solvencySource: BBVA Research based on Bank of Spain data 15 FDI and other capital flows entering the country were financing the current account deficit10 before the onset of the financial crisis 5 Starting in 2007, other capital inflows (bonds, 0 loans, etc.) turned highly volatile... -5 ... which makes the economy dependent on-10 flows through the Eurosystem-15 In light of the lack of liquidity, the main risk lies Aug-10 Apr-09 Aug-08 Aug-00 Apr-01 Aug-06 Dec-11 Dec-99 Dec-03 Aug-02 Aug-04 Apr-05 Dec-01 Dec-09 Apr-03 Dec-07 Apr-07 Dec-05 Apr-11 in self-fulfilling expectations FDI Other Eurosystem Current account Page 15
    • Consumption Outlook, 29 May 2012Section 24. Unprecedented fiscaladjustment due to the deviation in 2011Spain: adjustment in Public Administration deficits(% of GDP)Source: BBVA Research6.0 Fiscal adjustment measures equivalent to 5.1% of GDP are required in to reach the -5.3% target5.0 3.6 for 20124.0 2.33.0 The 2012-2015 Stability and Growth Programme2.0 contains measures that make meeting of the central government target perfectly feasible... 1.0 0.40.0-1.0 ... with the focus very much on the Autonomous Communities-2.0-3.0 2011 (Deficit: 8.9%) 2012 (Target: -5.3%) 2013 (Target: -3.0%) Additional manoeuvring room: as-yet- Cycle-adjusted Cyclical deterioration unspecified measures of the Autonomous Communities, or privatisations Discretionary measures Structural deterioration Total Page 16
    • Consumption Outlook, 29 May 2012Section 25. Supplier payment programmeThe impact on 2012 GDP of the Governmentsprogramme to settle administrations unpaid supplier Important liquidity injectioninvoices* (pp of GDP)* Max and Min depend on agents level of liquidity restrictionSource: BBVA Research based on MINHAP data The Government is to inject the equivalent of1.0 2.5% of GDP (€27bn) to pay off local and regional governments debts with suppliers0.90.8 The impact on growth could be significant,0.7 given that these companies are currently0.6 experiencing liquidity restrictions0.50.4 The final impact will depend to a large extent on current uncertainty0.30.20.10.0 20% 33% 50% Percentage of debts discounted Page 17
    • Consumption Outlook, 29 May 2012Section 26. Labour Reform The challenge: from adjustment toSpain: response to labour reform(% deviation from trend) growthSource: BBVA Research18 Short-term objective: to prevent further job16 losses→ change in working hours + labour14 flexibility and better-organised production1210 To stimulate growth where it is weak and to take 8 advantage of it in more buoyant sectors 6 4 A redistribution of production drivers towards 2 the more dynamic companies and sectors (export sector) 0-2 To eliminate barriers to internal growth via a 2020 2021 2012 2014 2018 2017 2016 2013 2015 2019 more favourable regulatory framework GDP Employment Page 18
    • Consumption Outlook, 29 May 2012Section 26. Financial-System ReformReal-estate assets: additional provisions and capital The new measures represent a stepcushionSource: BBVA Research based on MEC data forward60% Exposure: €184bn Exposure: €123bn Exposure: €307bn50% 10% 10% More realistic assumptions in real-estate40% 14% 14% valuations and larger writedowns30% 27% 17%20% 29% 29% 29% 30% The impact of the new requirements on 10% 18% 18% 18% shaping the sector will depend on how they are 0% 7% applied Total, May-12 Non-distressed, May-12 Non-distressed, Dec.-11 Total, Dec.-11 Non-distressed, Feb-12 Distressed, Dec-11 Total, Feb-12 Distressed, May-12 Distressed, Feb-12 Taking prompt action in insolvent institutions and making the cost clear Current coverage Additional provisions Capital cushion Page 19
    • Consumption Outlook, 29 May 2012ContentsSection 1International environment:continued global growth and persistent risks in EuropeSection 2Spain: recession confirmed, although it is not worsening. Ongoing reforms will increasegrowthSection 3Consumption: weaker drivers point to declining consumption in2012 and the first half of 2013Section 4Demand for durable goods: is there any? Page 20
    • Consumption Outlook, 29 May 2012Section 3Household consumptionSpain: private consumption (%)Source: BBVA Research based on INE data Key drivers of consumption 1 Disposable0 income 1. Job destruction and wage moderation-1 2. Public sector deleveraging-2 Propensity-3 to save / 3. Uncertainty consume 4. Liquidity pressure and-4 return on savings-5 2008 2009 2010 2011 2012 2013 Private consumption GDP Possibility of borrowing 5. Private sector deleveraging Page 21
    • Consumption Outlook, 29 May 2012Section 3Household consumption 1 Job destruction and wage moderationSpain: employment and unemployment rates (%)Source: BBVA Research based on INE data The economic slowdown has caused greater job 2 26 destruction 23 0 20 Labour-market reform might facilitate a-2 rebalancing adjusting the extensive margin (employment) and the intensive margin (hours 17 and wages) and reduce segmentation…-4 14-6 … but will not prevent the number of employed 11 from continuing to decline in the short term-8 8 Sep-10 Sep-11 Dec-09 Dec-08 Mar-10 2012 Dec-10 2013 Jun-10 Mar-11 Dec-11 Sep-09 Jun-11 Sep-08 Mar-09 Mar-08 Jun-09 Mar-12 Jun-08 Employment Unemployment rate (rhs.) Page 22
    • Consumption Outlook, 29 May 2012Section 3Household consumption 2 Public sector deleveragingSpain: effect of higher tax rates on GDP(Permanent increase, equivalent to 1% of GDP collected) Spain: gross disposable household income (%)Source: BBVA Research. REMS simulations, effect after two years. Source: BBVA Research based on INE data Personal Social Share 10 Consumption income tax Security capital 80.0 6-0.2 4 2-0.4 0-0.6 -2 -4-0.8 -0.75 -0.84 -6-1.0 -8 Sep-09 Sep-10 Jun-08 Jun-09 Dec-09 Sep-11 Jun-10 Dec-10 Mar-08 Mar-09 Sep-08 Mar-10 Dec-11 Mar-11 Dec-08 2013 Jun-11 2012 -1.0-1.2 -1.22 Nominal Real-1.4 Deterioration of labour market + fiscal Declining disposable income over the entire consolidation forecast period Page 23
    • Consumption Outlook, 29 May 2012Section 3Household consumption 3 Increased uncertaintySpain: household consumption, GDP and confidence Spain: impact of decrease in confidence on growthindicator (t-1) (%) in consumer spending*(%)Source: BBVA Research based on INE and EC data Source: BBVA Research based on INE data8 0.10 6 0.06 0.0 -1 0.004 -82 -15 -0.10 -0.1 -220 -29 -0.20 -0.2-2 -36-4 -43 -0.30 -0.3 -0.3-6 -50 -0.40 Dec-11 Dec-10 Dec-97 Dec-91 Dec-92 Dec-87 Dec-93 Dec-07 Dec-01 Dec-95 Dec-99 Dec-94 Dec-96 Dec-89 Dec-90 Dec-98 Dec-03 Dec-02 Dec-86 Dec-88 Dec-09 Dec-04 Dec-06 Dec-05 Dec-00 Dec-08 1st year 2nd yerar 3rd year -5.1 points, permanent -5.1 points, temporary Consumption (%, yoy, lhs.) GDP (%, yoy, lhs.) *Confidence indicator used is households’ perception of their future economic situation Household financial situation, next 12-month (t-1, rhs.) Uncertainty is expected to remain high Purchases are being postponed Page 24
    • Consumption Outlook, 29 May 2012Section 3Household consumption 4 Liquidity pressures and return on savingsSpread between rates offered on term deposits and Spain: promissory notes and deposits by non-12m Euribor (pp) financial corporates and households (% yoy)Source: BBVA Research based on INE and ECB data Source: Bank of Spain 6 1.5 5 1.0 4 30.5 20.0 1 0-0.5 -1-1.0 -2-1.5 -3 Mar-10 Mar-11 Sep-09 Sep-10 Sep-11 Jan-12 Sep-11 Sep-07 Nov-11 Mar-09 Mar-08 Mar-07 Sep-08 Mar-12 Jan-11 Jul-11 Mar-11 May-11 Deposits (non-financial corporates + households) and promissory notes Spain Germany Deposits (non-financial corporates + households) Higher remuneration from Liquidity private-party liabilities Encourages savings to the pressures (first deposits and, later, promissory detriment of consumption notes) Page 25
    • Consumption Outlook, 29 May 2012Section 3Household consumption 5 Private sector deleveraging (l)Household credit* (% GDP) Consumer credit (% GDP)(*) Consumer and other + housing, including securitisations (*) Including securitisationsSource: BBVA Research based on INE, Bank of Spain and European Commission data Source: BBVA Research based on INE, Bank of Spain and European Commission data100% 16% 14% 80% 12% 32pp 24pp 10% 60% 3.4pp 8% 40% 6% -0.2pp 4% 20% 2% 0% 0% 2007 2006 2009 2000 Mar-12 2003 2009 2010 2008 2011 2001 Mar-12 2007 2006 2003 2000 2004 2002 2005 2010 2011 2008 2001 2004 2002 2005 Spain* EMU Ireland Spain* EMU Ireland Household credit: far from converging with the Consumer credit: deleveraging well underway EMU (24 GDP points) Page 26
    • Consumption Outlook, 29 May 2012Section 3Household consumption 5 Private sector deleveraging (lI)Spain: response of consumption to a negative stimulusfrom lending, by type of shock(Deviation in annual growth from core scenario, pp)The stimulus has tapered off at 1 pp of credit in the first quarter of the year.Source: BBVA Research The deleveraging process will be long 0.4 0.2 0.0 Will continue to have a considerable impact on consumption ...-0.2-0.4-0.6 … Deeper and longer-lasting if it results from lower demand for credit-0.8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quarters Credit demand Credit supply Page 27
    • Consumption Outlook, 29 May 2012Section 3Household consumption 5 Private sector deleveraging (lII)BBVA Business Trend Survey: perception of credit Results of BBVA BTSsupply and demandBalance of answers: (<0 indicates a worsening)Source: BBVA Research Supply and demand for credit have fallen (more 15 than expected) over the last quarter: 0 -15 • Slack consumption and weak fundamentals have affected demand for credit, with a-30 higher rate of contraction in 1H12-45 • Slight relaxation of lending conditions,-60 although insufficient to avoid a contraction in supply-75-90 2H10 1H11 2H11 1H12 Outlook 2H12 Outlook for 2H12: somewhat more favourable from the standpoint of supply of than demand Supply Demand for credit Page 28
    • Consumption Outlook, 29 May 2012Section 3Household consumption 5 Private sector deleveraging (lV) What are the reasons for the slowdown inSpain: contributions to yoy growth in consumer credit demand? ∇ 1% in consumer spending → ∇ 1.4% in(%)Source: BBVA Research 20% 16% demand for consumer credit in the long term 12% (ceteris paribus) 8% 4% +100bp in interest rates on loans → ∇ 3.6% in 0% demand for consumer credit -4% -8% +1pp in unemployment rates → ∇ 4.6% in -12% demand for consumer credit -16%-20%-24% Sep-06 Mar-11 Sep-09 Jun-07 Dec-02 Jun-04 Dec-10 Jun-10 Dec-11 Mar-05 Sep-03 Mar-08 Dec-05 Mar-02 Worsening expectations of households – Private Consumption Real rates Unemployment reflected in rising unemployment rate- account Other Plan 2000E Consumer Credit for about 80% of the decline in consumer credit during the current crisis Page 29
    • Consumption Outlook, 29 May 2012Section 3Household consumption 5 Private sector deleveraging (V)Spain: interest rates on new consumer loans (%) Spain: household default rate (%)Through May 10, one-year interest rate and the weighted average rate include credit card transactionsSource: BBVA Research based on Bank of Spain data Source: BBVA Research based on Bank of Spain data14 8%12 7% 6%10 5% 8 4% 6 3% 4 2% 2 1% 0% 0 Mar-10 Sep-09 Sep-10 Mar-11 Jun-09 Dec-09 Sep-11 Jun-08 Mar-09 Jun-10 Dec-10 Mar-08 Dec-11 Sep-08 Dec-08 Jun-11 Jul-08 Jul-09 Apr-10 Jan-10 Apr-11 Oct-08 Oct-09 Apr-09 Oct-10 Jan-12 Apr-08 Jan-09 Jan-08 Jul-10 Jan-11 Jul-11 Oct-11 Weighted average rate Up to 1 year Home purchases and improvements Durable consumer goods More than 1 year and up to 5 years More than 5 years Other household financing Total householdsLingering financial pressures + expectation of weak demand + continued high default rates do not point to a recovery in consumer credit in the short term Page 30
    • Consumption Outlook, 29 May 2012Section 3Household consumption 5 Private sector deleveraging (VI)Spain: financial burden of households, official ratesand core inflation (%)Source: BBVA Research based on INE, ECB and Eurostat data20% 5% Fragile economic situation + lack of demand- side inflation pressures will keep interest rates at16% 4% historical lows …12% 3% 8% 2% … reducing the financial burden of households and making resources available for 4% 1% consumption 0% 0% Sep-09 Sep-10 Jun-08 Jun-09 Dec-09 Sep-11 Dec-12 Jun-10 Dec-10 Mar-08 Mar-09 Sep-08 Mar-10 Dec-11 Mar-12 Mar-11 Dec-13 Dec-08 Jun-11 Financial burden (% GDHI, lhs.) Official interest rate (%, rhs.) EMU core inflation (rhs.) Page 31
    • Consumption Outlook, 29 May 2012ContentsSection 1International environment and the Spanish economy: once again in recession and copingwith the challenge of preventing massive job destructionSection 2Spain: recession confirmed, although it is not worsening. Ongoing reforms willincrease growthSection 3Consumption: weaker drivers point to declining consumption in 2012 and the first half of2013Section 4Demand for durable goods: is there any? Page 32
    • Consumption Outlook, 29 May 2012Section 4Demand for durable goodsSpain: consumer goods availability Spain: perception of purchase timing(SWDA data, quarterly averages, Jan-08 = 100) (Difference of percentages between positive and negative responses, MM3)Source: BBVA Research based on MEC data Source: BBVA Research, based on Millward Brown data100 15 080 -1560 -30 -4540 -60 20 -75 Nov-09 Nov-11 Nov-10 Jul-09 Mar-09 Jul-10 Jul-11 Mar-10 Mar-11 May-09 Sep-09 Sep-10 Mar-12 May-11 Sep-11 May-10 Jan-10 Jan-11 Jan-12 0 Dec-09 Dec-10 Dec-11 Dec-08 Jun-09 Jun-10 Jun-08 Jun-11 Sep-09 Sep-10 Sep-11 Sep-08 Mar-12 Mar-09 Mar-10 Mar-11 Mar-08 Small appliances Music equipment or TVs Large appliances Computers Mobile devices Furniture Consumer goods Food products Cars Average Durables Other non-durable Domestic demand for durables remains weak … Did it hit bottom in 2011? Page 33
    • Consumption Outlook, 29 May 2012Section 4Demand for durable goodsSpain: real exports of goods(SWDA data; 1Q09 = 100)Source: BBVA Research based on MEC data Unlike in 1H11, foreign demand for durable goods180 has not offset sluggish domestic demand in 4Q11160 and 1Q12140120 Consumer electronics, furniture and100 automobiles: better relative performance 80 60 40 Two-wheeled vehicles and electrical appliances: higher-than-average decline Sep-09 Sep-10 Jun-09 Dec-09 Sep-11 Jun-10 Dec-10 Mar-09 Mar-10 Dec-11 Mar-12 Mar-11 Jun-11 Total goods Appliances Consumer electronics Computer equipment Cars Motorcycles and mopeds Furniture Durables (*) Page 34
    • Consumption Outlook, 29 May 2012Section 4Demand for durable goods a Cars: changing composition of sales by channel …Spain: car registrations Spain: car registrations by sales channel(SWDA data) (contribution to % yoy)Source: BBVA Research based on ANFAC and Ganvam data Source: BBVA Research based on ANFAC and Ganvam data 30 60 80 90 20 40 60 80 10 20 40 70 0 0 20 60 -10 -20 0 50 -20 -40 -20 40 -30 -60 -40 30 Plan 2000E -40 Plan 2000E -80 -60 20 Apr-10 Feb-10 Oct-09 Apr-11 Jun-09 Dec-09 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Aug-09 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jul-09 Apr-10 Jan-10 Apr-11 Oct-09 Oct-10 Jan-12 Apr-09 Jan-09 Jul-10 Apr-12 Jan-11 Jul-11 Oct-11 Private Corporate Rental agencies % mom % qoq % yoy (rhs.) Total Weight of private channel (rhs.) NCs rose in 1Q12 (+5.5% qoq SWDA) against a backdrop of falling prices … Rental companies are primarily responsible for … but then plummeted again in April: -14.7% recent fluctuations in sales (fleet renewals) mom Page 35
    • Consumption Outlook, 29 May 2012Section 4Demand for durable goods a Cars: … and by tpe Spain: Used vs. new cars Source: BBVA Research based on ANFAC, IEA and Ganvam data Demand for used vehicles continued to rise: 2000 2.2 3.4% en 2011 (57.7% between private parties) 1750 2.1 Slight correction in 1C12: -3.7% yoyThousands of cars 1500 1.9 1250 1.8 1000 1.6 750 1.5 used/new = 2.1 in 2011 (2.0 in 1C12) … 500 1.3 250 1.2 0 1.0 … In line with Germany (1.8), Italy (2.1) or France 2008 2009 2010 2011 Jan-Apr Jan-Apr (2.3) 2011 2012 Used car sales New car registrations Used/New (rhs.) Page 36
    • Consumption Outlook, 29 May 2012Section 4Demand for durable goods a Cars: an ageing fleet… along with the rest of EuropeSpain: breakdown of all cars by age (% of total) Cars more than 10 years old (% of total)Source: BBVA Research, using DGT data Source: BBVA Research based on ANFAC, IEA, ACEA and OICA 60 12 14% 50 10 12% +2.0pp 10% 40 8 8% 30 6 +9.6pp 6% 20 4 4% 10 2 -12.5pp 2% 0 0 Spain (2011) Netherlands Spain (2010) Germany Denmark France UK Austria Italy Greece Sweden Belgium Finland Portugal 0% 7 17 16 19 18 13 10 11 14 20 3 6 9 0 8 1 4 2 5 12 15 + of 20 Age of cars Dec-11 Dec-06 Cars more than 10 years old, % (2010) Average for selected countries Increase 2005-10, pp. (rhs.) The breakdown of cars has shifted to the right Convergence with Europe against this backdrop of overall ageing of the vehicle fleet Page 37
    • Consumption Outlook, 29 May 2012Section 4Demand for durable goods a Cars: outlook Spain: car registrationsSpain: forecasts for drivers of car registrations (Annual total and % change)Source: BBVA Research based on INE, MEC and Bank of Spain data Source: BBVA Research and ANFAC 1200 10 20 8 15 6 900 0 10 4 5 2 Thousand of cars % yoy 0 0 600 -10 -5 -2 -10 -4 300 -20 -15 -6-20 -8 0 -30 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 Real GDP pc (% lhs.) Actual Forecast Relative price of fuel (% lhs.) Actual % yoy (rhs.) Forecast % yoy (rhs.) Change in unemployment rate (pp. rhs.) Change in average interest rate on new consumer credit op. (pp., rhs.) Drivers of car registrations: complex scenario Some 750 thousand cars in 2012 and 800 thousand in 2013 Page 38
    • Consumption Outlook, 29 May 2012Section 4Demand for durable goods b Two-wheeled vehicles: going downhill What are the reason for lower demand?Spain: registrations of mopeds and motorcycles(SWDA data, % qoq)Source: BBVA Research based on Anesdor and Bank of Spain data30 3 Deterioration of drivers (disposable income, Plan Moto-E unemployment—especially among young20 2 people—and risk aversion) 10 1 0 0 Regulatory changes: increase in the licence age-10 -1 for mopeds to 15 and the transposition of-20 -2 Directive 2006/126/CE almost four years ahead of European requirements-30 -3-40 -4-50 -5 Sep-09 Sep-10 Jun-08 Jun-09 Dec-09 Jun-10 Dec-10 Mar-08 Mar-09 Sep-08 Mar-10 Mar-12 Dec-08 Mar-11 Jun-11 Sep-11 Dec-11 In 2012 some 100 thousand mopeds might be Registrations Total cars (rhs) registered (125 thousand in 2011) Page 39
    • Consumption Outlook, 29 May 2012Section 4Demand for durable goods c Furniture: drop in line with the average decline for durablesSpain: furniture sector turnover Two underlying reasons:(SWDA data, % qoq)Source: BBVA Research based on INE data 10 Downside exports: -18.6% SWDA between 4Q11 and 1Q12 5 0 -5 Perennial deterioration in investment in housing:-10 -10.1% SWDA between 4Q11 and 1Q12-15 ∇ approx. 0.7% qoq in turnover BBVA Research estimates: • ∇ of 1% qoq in nominal investment in-20 • ∇ of 1% qoq in nominal furniture exports → Sep-09 Sep-10 Jun-08 Jun-09 Dec-09 Sep-11 Jun-10 Dec-10 Mar-08 Mar-09 Sep-08 Mar-10 Dec-11 Mar-12 Mar-11 Dec-08 Jun-11 Furniture Durable consumer goods Consumer goods housing → ∇ decline in turnover 0.6% qoq, cumulative Page 40
    • Consumption Outlook, 29 May 2012Section 4Demand for durable goods d Major household appliances: falling consumption, rising post-saleSpain: sales of appliances by product family Spain: consumer prices for household appliances(% yoy of units) (Jan-08 = 100)Source: BBVA Research based on ANFEL data Source: BBVA Research based on INE data Refrigerators 120 20 Total 10 Freezers 0 112 -10 -20 104Counters -30 Washing machines -40 96 88 Abr-11 Apr-10 Apr-08 Apr-09 Jan-10 Oct-10 Jul-08 Jul-09 Jan-08 Apr-12 Oct-08 Oct-09 Jul-11 Jan-11 Jan-12 Oct-11 Jan-09 Jul-10 Ovens Dryers Total appliances Refrigerators, washing mach. and dishwashers Cookers Dishwashers Cookers and ovens Other appliances Appliance repairs General 2010 2011 Jan-Apr 2011 Jan-Apr 2012Jan-Apr 2012: -12.0% yoy; turnover: -14.9% yoy Generalised fall in prices, except for repairWashing machines and dishwashers: smaller services (+17.0% since Jan-08) relative decline Page 41
    • Consumption Outlook, 29 May 2012Section 4Demand for durable goods e Brown line products: a promising half year following a year to forgetSpain: real retail sales of brown line items Spain: consumer prices for
brown line items(SWDA data, % qoq) (Jan-08=100)Source: BBVA Research based on Eurostat data Source: BBVA Research based on INE data 8 110 6 100 4 90 2 80 0 -2 70 -4 60 -6 50 -8 40-10 Apr-11 Jul-11 Jan-12 Jul-08 Jul-09 Apr-10 Jul-10 Oct-10 Jan-11 Jan-08 Oct-11 Apr-12 Oct-08 Oct-09 Apr-08 Apr-09 Jan-10 Jan-09-12 Sep-09 Sep-10 Jun-08 Jun-09 Dec-09 Sep-11 Jun-10 Dec-10 Mar-08 Mar-09 Sep-08 Mar-10 Dec-11 Mar-11 Mar-12 Dec-08 Jun-11 Telephone equipment Video and sound equipment General Cameras and movie equipment ITC Consumer-electronics Non-food products Computer equipment 4Q11 + 1Q12: consumer electronics -8.5% SWDA; ITC -5.1% SWDA Persistent deflation (except in telephony) Eurocup and Olympics: will increase sales in 2Q contributes to raise penetration rate and 3Q Page 42
    • Consumption Outlook, 29 May 2012Key themes1 Europe decoupling from the global economy growth while the region continues to await a long-term plan to boost economic activity and allow sovereign risk to be spread in exchange for structural reform and better coordination2 Spains GDP is still expected to contract in 2012 (by 1.3%), before gradually recovering in 2013. However, this outlook now appears less certain3 Building up confidence now depends on the design, execution, and communication of a credible set of reforms4 Weaker drivers point to declining consumption in 2012 and the first half of 2013, especially for durable goods5 Lingering financial stress and high default levels, and, in particular, the expectation of weak demand do not point to an increase in consumer credit in the short term6 Worsening expectations by households account for 80% of the fall in demand for consumer credit in the current crisis Page 43
    • Consumption Outlook, 29 May 2012Consumption OutlookMadrid, 29 May 2012 Page 44
    • Consumption Outlook, 29 May 2012AppendixAppendix 1Spain: restructuring processes in major appliances and brown products sectors (2009-12)* D: distributing company; M: manufacturing companyShaded cells: changes since publication of last Economic Outlook. ConsumptionSource: BBVA Research based on Alimarket and European Monitoring Centre on Change dataCompany Type of company* Type of restructuring Company Type of company* Type of restructuringPC City D (-) Store closure and workforce reduction Infinity System F,D (-) Temporary workforce reductionDarty D (-) Store closure Sanyo F (-) Plant closure Electronic DevicesMiró D (-) Store closure and workforce reduction F (-) Liquidation ManufacturerUnecsa D (-) Voluntary bankruptcy Engel Axil F (-) Voluntary bankruptcyUrende D BSH F (-) Workforce reduction (-) Store closure and workforce reduction Sharp F (-) Temporary workforce reduction (-) Approval of closing of stores andUrende D (-) Workforce reduction following worforce reduction Daewoo F extinction of companyUnecsa D (-) Closing of stores Daewoo F (-) Sale of plantFibertel D (-) Voluntary bankruptcy Di4 F (-) Voluntary bankruptcyMedia Markt D (+) Opening of stores Rimax innovation F,D (-) LiquidationEcomputer D (+) Opening of stores NPG F (+) Expansion (+) Opening of stores (+ partial absorptionWorten D Conceptronic F PC City)Fnac D (+) Opening of stores Digital Data (+) Merger FFnac D (+) Opening of stores CommunicationsWorten D (+) Opening of storesApple D (+) Opening of storesElectro merkat D (+) Opening of storesTristar Spain D (+) MergerTopcom Iberia D Page 45