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The Global Economic Outlook and the Spanish Economy

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Global economy: a more balanced contribution to growth between developed and emerging economies. …

Global economy: a more balanced contribution to growth between developed and emerging economies.

Spain: the Spanish economy will bottom out in 2013. Growth will resume in 2014

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  • 1. The Global Economic Outlook and the Spanish Economy Rafael Doménech IADS FINANCIAL DIRECTORS MEETING Madrid, October, 3 and 4, 2013
  • 2. Global Economic Oulook – October 2013 Section 1 Global economy: a more balanced contribution to growth between developed and emerging economies Section 2 Spain: the Spanish economy will bottom out in 2013. Growth will resume in 2014 Page 2
  • 3. Global Economic Oulook – October 2013 The global economy is growing but below its potential 1 2 Global growth has slowed down slightly due to incoming adjustment in emerging economies Financial conditions have tightened in some countries as consequence of FED announcement on the QE exit strategy and the emerging economies adjustment World GDP growth (%) Source: BBVA Research 2.8 -0.4 5.1 4.0 3.3 3.1 3.8 -2 -1 0 1 2 3 4 5 6 2008 2009 2010 2011 2012 2013 (f) 2014 (f) Adv. Economies Emerging economies Baseline Aug-13 Baseline May-13 Page 3
  • 4. Global Economic Oulook – October 2013 US: sustained recovery (albeit below potential), strength in private demand. A careful exit strategy by the Federal Reserve is a must (forward guidance) Emerging economies: resiliency and macroeconomic stability during a prolonged period of crisis in developed economies, but heterogeneity between countries EMU: recovery although with differences among countries. Fiscal targets delayed, advances towards the Banking Union and financial stress reduction Spain: improving outlook and international confidence, lower risk premium, current account surplus and macroeconomic stabilization Progress in the global economic situation… Page 4
  • 5. Global Economic Oulook – October 2013 … with significant uncertainties Worldwide: risk of abrupt deceleration in some emerging countries and doubts on their ability to rebalance the economic pattern, effects on capital flows of the monetary normalization in the US and geopolitical risks in the Middle East. US: debt ceiling agreement, long term fiscal uncertainty and risks regarding the exit strategy of the Federal Reserve EMU: political uncertainties in Italy and Spain, new financial assistance to Greece and Portugal, AQR results of European banks, sovereign risk persistence and financial fragmentation Spain: uncertainty about the scope and intensity of structural reforms, potential growth, fiscal consolidation and completion of bank restructuring Page 5
  • 6. Spain Economic Outlook, September 2013 Page 6 BBVA financial tensions index Source: BBVA Research Eurozone: political gridlock in Italy; bail-out in Cyprus; Portugal’s Constitutional Court rejection of austerity measures USA: political deadlock over long-term fiscal policy China: deeper-than-expected slowdown and increasing risks of local public debt and shadow banking Developed markets remained resilient to risk events -0,50 0,00 0,50 1,00 1,50 2,00 2,50 3,00 ene-08 jul-08 ene-09 jul-09 ene-10 jul-10 ene-11 jul-11 ene-12 jul-12 ene-13 jul-13 USA EMU Lehman Brothers 1st bail out of Greece Risk of Euro break up Sovereign & banking contagion in the EZ
  • 7. Global Economic Oulook – October 2013 EMU recovery is underway but behind the USA EMU: MICA BBVA and GDP growth, % QoQ Fuente: BBVA Research -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 Serie9 Serie3 Serie4 MICA-BBVA GDP observedCI 20% CI 40% CI 60% EMU: GDP growth forecast Source: BBVA Research Page 7 Country   2013   2014   Germany   0.5%   1.8%   France   -­‐0.1%   1.1%   Italy   -­‐1.8%   0.8%   Spain   -­‐1.4%   0.9%  
  • 8. Global Economic Oulook – October 2013 The USA has recovered 2/3 of the fall in GDP per working-age population … such that the current level of GDP per working-age population is slightly lower than in 2009 The sovereign debt crisis in EMU put an end to the recovery of 2010 and 1H2011 … GDP per working-age population (2Q2008=100) Source: BBVA Research 88" 90" 92" 94" 96" 98" 100" 102" mar,00" mar,02" mar,04" mar,06" mar,08" mar,10" mar,12" EMU recovery is underway but behind the USA … Page 8
  • 9. Global Economic Oulook – October 2013 Net balance with the Eurosystem (EUR bn) Source: BBVA Research based on Bloomberg Interest rate of new loans to businesses (Up to one million un euros, more than 5 years) Source: ECB -500 -400 -300 -200 -100 0 100 200 300 400 500 600 700 800 900 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Germany Spain 2 3 4 5 6 7 8 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Euro Area Germany France Spain Italy … and financial fragmentation is still high Page 9
  • 10. Global Economic Oulook – October 2013 FED’s tapering expectations roiled markets … Page 10 US: 10 y Treasury, yield (%) Source: Bloomberg Implicit policy rates in fed funds futures Source: Bloomberg and BBVA Research 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 Latest June 25th (one week after June FOMC meeting) BBVA forecast May 21st (one day before Bernake´s congressional hearing) 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13
  • 11. Global Economic Oulook – October 2013 … impacting especially in emerging economies …, which could impact growth prospects if persistent in time. Capital outflow from emerging countries,… …, due to idiosyncratic reasons,… BBVA´s Financial Stress Index Fuente: BBVA Research -0.30 0.00 0.30 0.60 0.90 1.20 1.50 1.80 -0.09 -0.06 -0.03 0.00 0.03 0.06 0.09 0.12 1-sep-10 22-dic-10 13-abr-11 3-ago-11 23-nov-11 14-mar-12 4-jul-12 24-oct-12 13-feb-13 5-jun-13 25-sep-13 Emerging Markets, left axis Developed Markets, right axis Page 11
  • 12. Global Economic Oulook – October 2013 44 46 48 50 52 54 56 58 60 44 46 48 50 52 54 56 58 60 Jan-­‐11 Jul-­‐11 Jan-­‐12 Jul-­‐12 Jan-­‐13 Jul-­‐13 China Mexico Brazil India Transitory global slowdown due to emerging countries? Page 12 Emerging economies: PMIs manufacturing Source: Haver, BBVA Research Global GDP growth based on BBVA-GAIN (%,q/q) Source: BBVA Research 0,0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 Q3-12 Q4-12 Q1-13 Q2-13 (1-Aug) Q2-13 (1-Sept) Q3-13 (1-Aug) Q3-13 (1-Sept) Actual Estimates
  • 13. Global Economic Oulook – October 2013 Global growth slows down slightly and resets across areas Economic growth (%) Source: BBVA Research, Haver Page 13 The global economy shows a cyclical downturn, especially in emerging countries, and faces a tightening of financial conditions Developed economies: the US and the Euro Area keep a slightly better outlook for 2014 Emerging economies, growth in BBVA Eagles remains, although somewhat lower due to downward revisions in China and Latam 3.3 3.1 3.8 2.8 1.8 2.3 -0.5 -0.4 1 5.1 5.2 5.6 -2.0 0.0 2.0 4.0 6.0 8.0 -2.0 0.0 2.0 4.0 6.0 8.0 12 13 14 12 13 14 12 13 14 12 13 14 World US Eurozone Eagles July-13 April-13
  • 14. Global Economic Oulook – October 2013 Section 1 Global economy: a more balanced contribution to growth between developed and emerging economies Section 2 Spain: the economy is bottoming out in 2013 and growth will resume in 2014 Page 14
  • 15. Spain Economic Outlook, September 2013 Page 15 Spain: GDP growth and MICA-BBVA forecasts (% QoQ) Source: BBVA Research based on INE data A more protracted economic recession in Europe, financial fragmentation and the intensification of the fiscal consolidation ... ..., but trends in activity improved in 2Q13 and are pointing to slight growth in 2H13 ... were responsible for a higher-than-expected economic decline in 4Q12 and 1Q13... The Spanish economy is bottoming out in 2013 … -1,5 -1,0 -0,5 0,0 0,5 -1,5 -1,0 -0,5 0,0 0,5 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 CI at 20% CI at 40% CI at 60% Data (MICA-BBVA Nowcast for 3Q13)
  • 16. Spain Economic Outlook, September 2013 Page 16 … following previous business cycle stylised facts Exports growth Investment in machinery and equipment Gross operating surplus New credit operations (flow) Employment growth GDP growth Growth of the stock of credit Stabilized Stabilized Stabilizing Falling Leading . = . Lagging .
  • 17. Spain Economic Outlook, September 2013 Page 17 Exports growth: great performance compared to EMU In spite of the recession experienced within the EMU in the last year (50% of total Spanish exports), Spanish exports have grown The increase was partly a result of higher exports to countries in the BBVA-EAGLEs area and other developed economies,… …, but also of the higher competitiveness of Spanish exports, in terms of both price and quality Exports (% change, 1Q12-2Q13) )*): Data unitl 1Q13 Source; BBVA Research based on INE -5% 0% 5% 10% Ireland Norway Finland Sweden Belgium Denmark Italy France Austria European Union Euro area Netherlands United Kingdom Germany Switzerland Portugal Spain
  • 18. Spain Economic Outlook, September 2013 Page 18 The current account balance: from deficit to surplus Productivity gains have been large since the beginning of the crisis (12%) Tradeables like manufacturing and industry have had gains above 20% They have been widespread and not concentrated in residential construction EU: cumulative change in Current Account and unit labour costs, 1Q08-4Q12 (%) Source: BBVA Research based on Eurostat data BE CZ DK DE EE IE EL ESP FR IT CY LV LT LU HU MT NL AT PL PT RO SISK FI SE UK NO -6 -4 -2 0 2 4 6 8 10 12 14 16 -15 -10 -5 0 5 10 15 20 CurrentAccount(changeinpp) Unit labor Costs (% change)
  • 19. Spain Economic Outlook, September 2013 Page 19 Spain: Financing Capacity (+) / Needs (-) with the rest of the world (% of GDP) Source: BBVA Research A stable private saving rate and the reduction in the investment rate… …have allowed firms to increase their financial capacity, fuelling a deleveraging process that is now hitting its fifth year The current account balance: from deficit to surplus This has improved their balance sheets, placing them in a better position to resume investments -15% -10% -5% 0% 5% 10% 2007 2013(f) Private sector Public sector Total
  • 20. Spain Economic Outlook, September 2013 Page 20 60 70 80 90 100 110 120 130 140 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 Exports GFKF: Equipement and Machinary Investment in equipment and machinery recovering Spain: exports and investment in equipment and machinery (2008=100) Source: BBVA Research based on INE data Brighter prospects for the EMU and sustained growth in exports... Indeed, in 1H13 investment grew 8% yoy … should drive higher private investment
  • 21. Spain Economic Outlook, September 2013 Page 21 Public administrations: budget deficit breakdown excluding financial sector aid (% of GDP) Source: BBVA Research, based on MINHAP data Fiscal consolidation will require smaller efforts Fiscal consolidation is working: budget effort in 2012 was above 4pp of GDP Overall, there are still major reforms to be undertaken (pensions, local corporations, PES), that would increase the efficiency of the public administrations 2014 will not require as great an effort as in 2013 and 2012 9.0 2.6 4.6 7.0 1.7 2.2 6.5 -0,1 0.6 5.8 0 2 4 6 8 10 12 14 Deficit Passivefiscalpolicy Fiscaleffort Deficit2012 Passivefiscalpolicy Fiscaleffort Deficit2013 Passivefiscalpolicy Fiscaleffort Deficit2014 2011 2012 2013 2014
  • 22. Global Economic Oulook – October 2013 Job destruction has slowed down in the last few quarters… Should Spain have had better labor institutions at the beginning of the crisis, job destruction would have been lower …, partly thanks to wage moderation Spain: GDP, employment and productivity (% qoq) Source: BBVA Research based on INE -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 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(e) Employment f.t.e Labor productivity GDP Page 22 The labour market is stabilising
  • 23. Global Economic Oulook – October 2013 Spain: impact of wage moderation in 2012 on employment (thousands of jobs) Source: BBVA Research Labour market reform and the 2nd Agreement on Employment and Collective Bargaining prevented greater job destruction in 2012 The existence of better employment institutions at the onset of the crisis might have prevented the destruction of around one million jobs Without the wage moderation of 2012, an additional 60 thousand jobs would have been lost in the short term (300 thousand in the medium and long term) The labour market is stabilising 0 200 400 600 800 1000 1200 Short term From the third year From the third year Employment destruction avoided by the wage moderation Jobs that would be saved if the process had begun in 2008 Page 23
  • 24. Spain Economic Outlook, September 2013 Page 24 A window of opportunity that must be seized The baseline scenario is highly sensitive to financial conditions in international markets, while numerous risks persist Europe should progress towards a more genuine EMU. For this, progress towards the banking union in 2013 and European policies to promote growth are crucial Efforts to achieve permanent improvement of markets and take advantage of it, unlike previous recovery in the past Spain must strengthen efforts with the ongoing adjustments and structural reforms required to boost the competitiveness of its economy
  • 25. Global Economic Oulook – October 2013 Page 25 A window of opportunity that must be seized The ECB is serving as a bridge until the new institutional framework is established Banking union is key to tackling market fragmentation. Any delay implies risks The new fiscal and imbalances detection framework should serve to deliver a better balance between fiscal consolidation and structural reforms in EMU members The medium term goal of configuring some form of fiscal union requires significant pre-requisite steps
  • 26. Rafael Doménech IADS FINANCIAL DIRECTORS MEETING Madrid, October, 3 and 4, 2013 The Global Economic Outlook and the Spanish Economy

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