This quarterly report from Círculo de Empresarios provides a summary of the global and Spanish economies in Q2 2016. It discusses projections showing slowing global GDP growth. Risks to the global economy include financial shocks, Brexit, weak trade, and geopolitical instability. The report also analyzes the economies of China, other emerging markets in Asia and other regions, noting slowing growth trends and risks from high corporate debt levels.
3. 2016 GDP projections
3
*World Bank forecast, June 2016
Source: Círculo de Empresarios based on European Commission Spring forecasts, 2016
2.3%
UEM
1.6%
-3.7%
2.2%
-0.5%
0.6%
0.8%
6.5%China
India
7.4%
4.9%
Russia
-1.9%
1.8%
0,8%
GLOBAL GDP*
2015 2016
2.4 2.4
4. Risks to global growth...
4
1
• Economic and financial shocks
• Possible spillover effects
• UE cohesion at risk
BREXIT
• Weak global trade
• Brazil’s political crisis
• Less income due to lower commodity prices
CHINA + EMERGING
• Geopolitical conflicts and human crisis
• Middle East
• Terrorism
GEOPOLITICAL INSTABILITY
• Monetary policy divergence
• Space for further accommodation has narrowed
• Dolar appreciation
MONETARY POLICY
• Negative interests rates in Japan and EU
• An increase in global risk aversión
• Higher financial volatility
FINANCIAL MARKETS
2
3
4
5
4
5. Improvement in the global scenario
5
¥
Rebound in oil pricesChina’s soft landing
...However, rising uncertainty mainly driven by Brexit
++ +
GDP growth faster than
expected in Japan, EU, US... (+80% since February)
Less pressure on the value of the
yuan, and the pace of decline
of currency reserves slowed
Large losses in European Stock Markets
(-11% Europe, on June 24th)
Market volatility increases
(+50% VIX*)* VIX: Volatility Index
6. Anemic economic activity...
6
Slowdown in economic activity
Emerging economies contributed
to 50% global growth downgrades
Global manufacturing PMI points
to 2012 minimums
Global trade forecasts continued to
be downgraded due to:
Marked deceleration in import
demand for emerging economies
Rebalancing in China
Crisis minimums
2.3 2.4
2.6
2.4 2.4
1.3
1.1
1.7 1.8
1.7
5
4.7
4.2
3.4
3.5
0
1
2
3
4
5
6
2012 2013 2014 2015 2016 2017 2018
Real GDP Growth
Annualchange
Global Advanced Emerging
Forecast
0
3
6
9
12
15
2010 2011 2012 2013 2014 2015 2016
Global tradeevolution
Annual change
í
-3
0
3
6
9
12
15
Global Emerging Advanced
Import volume growth
Annual change
2011
2015
Source: Círculo de Empresarios based on World Bank, 2016
7. Emerging: weak recovery
Half of the pre-crisis
average growth rate
Emerging economies
account for about 50% of
global growth compared
to more tan 60% in 2010-14
90% of growth slowdown
were in commodity
exporters (especially crude
exporters)
7
...Especially in exporting emerging economies
Divergence among emerging economies
Fifth consecutive year of
decling growth
*Slowest pace since the financial crisis
+7.1%
South Asia
+6.3%
East Asia and Pacific Middle East + North Africa
+2.9%
Sub-Saharan
Africa
Europe and Central Asia
+2.5% +1.2% -1.3%
Latin America and the Caribbean
3.2
2.1
0.2
0.4
5.9 5.9 5.9 5.8
4.7
4.2
3.4 3.5
0
1
2
3
4
5
6
7
2013 2014 2015 2016
Emerging countries' real GDP evolution
%
Commodity exporters
Emerging (excluding
commodity exporters)
Total emerging
Source: Círculo de Empresarios based on The World Bank, June 2016
8. 25
35
45
55
65
2000 2004 2008 2012 2016 2020
Share of emerging vs advanced countries
% of global GDP
Advanced economies
Developing economies
Source: Círculo de Empresarios based on IMF, April 2016
Emerging: share of global GDP
8
In 2016, emerging economies represents 58.1% of global GDP and 85% of world population
From 2010-15, BRICS accounted for about 40% of global growth, up from about 10% during the 1990s.
Actually, they together now account for more than 20% of global activity
58.1%
41.9%
(PPP)
9. Emerging: external sector and reserves
9
Weak exports, especially in dependent commodity-exporting countries
(Brazil, Russia...)
... However, foreign exchange reserves are broadly stable
Outflows in emerging economies
In million $
Emerging
Outflows
2014
-111.000
2015*
-735.000
2016**
-448.000
*92 % in China
** IIF forecast
-2
0
2
4
6
8
10
12
2011 2012 2013 2014 2015 2016
Exportsof goods and services
Annual change
Emerging countries Asia Global
Source: Círculo de Empresarios based on IMF, April 2016
-1
-0,5
0
0,5
1
1,5
2
2,5
3
3,5
4
-300
-200
-100
0
100
200
300
400
500
600
700
800
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Current account in emerging economies
Millions (left axis)
% GDP (right axis)
Source: Círculo de Empresarios based on IMF, April 2016
0 5 10 15 20 25 30 35 40
Thailand
China
Japan
Malaysia
Korea
Russia
Brazil
Mexico
India
South Africa
Turkey
Indonesia
Foreign reserves in emerging countries
% of GDP
1997
2015
Source: Círculo de Empresarios based on Caixabank Research, 2016
Note: Gold reserves are included for some countries
10. Emerging: corporate debt raises in an
uncertain environment
Emerging corporates will face payments of 180 billion$ in the next 4 years
Higher levels of debt leads to a lower
potential growth in the region
Between 2007-14 corporate debt outpaced
14 trillion $ (26 pp of GDP)
In 2015, total debt (private + public)
reached 65 trillion$ (224% of GDP)
10
0
10
20
30
40
50
60
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Payment deadlinesof emerging corporatedebt
Billions of $
Source: Círculo de Empresarios based on Bloomberg, 2016
435.000 millon $
-10
0
10
20
30
Change in corporatedebt of emerging countries 2007-14
Percentage points
Source: Círculo de Empresarios based on IMF, 2015
50
47
63
60 59
66
70
74
40
50
60
70
80
2007 2008 2009 2010 2011 2012 2013 2014
Emerging corporatedebt
% of GDP
Source: Círculo de Empresarios based on IMF, 2015
11. Emerging Asia: global growth leader
11
…Despite a slower pace in global economic growth
Top GDP growth countries 2016
India
+7.5%
Laos
+7.4%
Myanmar
+8.6%
Camboya
+7% +6.5%
China
Growth supported by domestic demand,
especially private consumption
Lower inflation pressureses and higher
current account surpluses
2.9% 1.7%
Inflation 2016 Current account 2016
( Forecast) ( Forecast)
Source: Círculo de Empresarios based on IMF, 2016
5.8
5.1
5.7 5.6
5.4 5.3 5.3
7.8
6.4
7
6.8
6.6 6.5
6.3
4
4,5
5
5,5
6
6,5
7
7,5
8
2011 2012 2013 2014 2015 2016 2017
Real GDP in Asia
%
Asia Emerging Asia
Source: Círculo de Empresarios based on IMF, April 2016
12. China: obstacles and policy
actions
12
INDEBTEDNESS
NON-PERFOMING LOANS
REAL STATE
CAPITAL MARKETS
1
3
2
4
... Main weaknesses
...Policy responses
Liberalization
of deposit
rates
Less
restrictions
for FDI
Less
monopolies
Fiscal
reforms
Yuan
flexibility
* By 2050, China’s labor force supply will remain below 55% (70% in 2010)
... Plus demographic and productivity challenges
13. China: economic transition
13
1,8
Economic growth is expected to normalize
Quarterly growth*
1Q-2014: +1.7%
1Q-2016: +1.1%
The sharp slowdown in industrial
activity has been mitigated by
growth in the services sector (half of
GDP)
Q1 contribution to GDP: 84.7% (+20
pp relative to the previous year)
China continues its gradual slowdown and rebalancing
14.19
9.62
9.23
10.63
9.48
7.7 7.68 7.31
6.89 6.7
3
6
9
12
15
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
China's real GDP
Annual change
Source: Círculo de Empresarios based on The Wolrd Bank, June 2016
2015 nominal GDP: 10 ,9 Tn $
*China still represents 50% of the asian economic growth
10,8 10,7 10,3 10,1 9,3 10,1 10,0 9,2 9,0
47,3 47,5 46,2 46,7 44,4 45,3 43,9 42,6 40,5
41,9 41,8 43,2 43,2 46,4 44,6 46,1 48,2 50,5
0%
20%
40%
60%
80%
100%
2007 2008 2009 2010 2011 2012 2013 2014 2015
Distributionof GDP by economic sectors
% of GDP
Services
Industry
Agriculture
Source: Círculo de Empresarios based on Statista, 2016
14. China: convergence or divergence
14
1,8
China vs US nominal GDP
Trillion $
In 10 years...China can overtake US to become the world’s biggest economy if its transition is successfull
+2% +6%
10,3
14,5
18
1,2
3,5
11,4
22,3
0
5
10
15
20
25
EEUU China
22,3
2% and 6% constant GDP growth
China’s GDP will overtake the US level
in 2026 at these growth rates*
China + US = 35% of global GDP
Source: Círculo de Empresarios based on Bloomberg, 2016
US
15. 39%
16%
6%
24%
15%
China: share of global GDP
15
1,8
Share of global GDP
%
$ of 2015
Source: Círculo de Empresarios based on IMF, 2016
US
Japan
Eurozone
Rest of
the world
China
1995: 2%
1995: 6%
PPP terms
Rest of
the worl
Eurozone
Japan
US
China
51%
12%
4%
16%
17%
At market exchange rates...
China is the 2nd largest economy world
...and the 1st in PPP terms
16. China: Channels of spillovers to Asia
1,8
Between 2000-2015 China...
Source: Círculo de Empresarios based on IMF, 2016
China accounted for nearly 1/3 of global growth
Exports to China increased from 3% to 9% of world exports
22% of Asian exports (9% in 2000)
Spillovers from China to its trading partners in Asia
New Zeland
Commodity prices
channel
Financial
channelTrade
channel
Thailand
Vietnam
Malaysia
Taiwan
Korea
Singapore
Japan
1 pp of China’s GDP growth
-0,30 pp decline in growth for Asian
countries
16
17. China: external sector and exchange rate
17
Highest rise in 11 months
The pace of decline of currency reserves slowed
During the 2Q, the pressure on
the renminbi subsided
China’s shift towards a slower
growth path reinforce the
weakness demand of intermediate
and industrial goods
5,9
6
6,1
6,2
6,3
6,4
6,5
6,6
6,7
6,8
02.01.2014 10.04.2014 17.07.2014 23.10.2014 29.01.2015 07.05.2015 13.08.2015 19.11.2015 25.02.2016 08.07.2016
Dollar-renminbiexchangerate (reversed)
Source: Círculo de Empresarios based on Bloomberg, 2016
1st
depreciation
2nd depreciation
Inclusion in the
basket of currency
3.84
3.33
3.23
3.20 3.21 3.22
3.19 3,205
3,0
3,1
3,2
3,3
3,4
3,5
3,6
3,7
3,8
3,9
-30
-25
-20
-15
-10
-5
0
5
10
15
2014 2015 jan-16 feb-16 mar-16 apr-16 may-16
External sector and currency reserves in China
Annual change, billion $
Reserves (right axis)
Exports (left axis)
Imports (left axis)
Source: Círculo de Empresarios based on Reuters and Safe, 2016
Bn $%
18. China: corporate debt risk
18
Total debt exceed 250% of GDP
China needs 4 yuan of new debt to
generate 1 yuan of additional GDP
(1 before the financial crisis)
...Which could lead to more financial instability
0
2
4
6
8
10
12
14
0 2 4 6 8 10
Mining, real state and steel firms are
the most indebted and less profitable
Manufacturing
Steel
Real State
Mining
Retail and
wholesale
Utilities
Construction
materials
Energy
Transporation
Debt to EBITDA
Companiesfacinglosses(%total)
China’s corporates debt by sectors
Note: The size of the bubble represents the size of the sector in terms of indebtedness
Source: Círculo de Empresarios based on IMF 2016
Credit growth:
Non-performing loans: 5,5% (6% of
China’s GDP)
14%**
50
70
90
110
130
150
170
190
210
230
China France Spain Japan Euro area United
Kingdom
U.S.A Italy Germany India
Non-financial privatesector debt 2015
% of GDP
Source: Círculo de Empresarios based on BIS, 2016
19. 2.000
2.500
3.000
3.500
4.000
4.500
5.000
5.500
China: financial markets
19
Note:
- China is the second largest banking system in the world (assets equivalent to 40% of global GDP), and its bond market is
the world’s third-biggest(7.5 trillion $).
Source: Círculo de Empresarios based on Investing, 2016
* MSCI: Morgan Stanley Capital Index
Despite the bubble burst, the chinese stock market is the second largest in the world(6 bn$)
20. India: continued economic dynamism
20
Source: Círculo de Empresarios based on World Bank, 2016
Solid domestic demand
Source: Círculo de Empresarios based on ADB, 2016
GDP growth divergence
between China and India
Inflation has stayed subdued
due to lower commodity prices
3.8 4 3.8
7.9 7.9
9.3 9.3
9.8
3.9
8.5
10.3
6.6
5.1
6.9
7.3 7.6 7.6 7.7
0
500.000
1.000.000
1.500.000
2.000.000
2.500.000
3.000.000
0
2
4
6
8
10
12
14
16
2000 2003 2006 2009 2012 2015
Evolution of real and nominal GDP in India
%, millions
Real GDP India (left axis) Real GDP China (left axis)
Nominal GDP India (right axis)
Private
consumption
55%
Public
spending
4%
GFCF
23%
Others
17%
External
Sector
1%
8.6
3.3
5.2
0
1
2
3
4
5
6
7
8
9
10
Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
Inflation rate India
Annual change, %
Total Core Trend
21. India: external sector and reserves
21
Source: Círculo de Empresarios based on Asia Development Bank, 2016
Lower global demand reduces its exports
... But strong currency reserves
Currency reserves increased to $350 bn
(+4% change vs previous year)
FDI in India in 2015 = $322 bn (vs. +29% in 2014)
By 2030 its population will
overtake the amount of 1.4 bn
people
7 Indian companies in Fortune 500
2nd country by English
speakers
200
220
240
260
280
300
320
2011 2012 2013 2014 2015
External sector India
Billions of $
Imports (ex. Energy)
Exports (ex. Energy)
250
260
270
280
290
300
310
320
330
340
Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16
India's currency reserves
Billions of $
22. Japan: economic stagnation
22
The appreciation of the yen, a low
economic feeling, the impact on the
earthquakes in the región of Kuramoto
and the demographic pressures, among
others, limits the economic growth
Quarterly GDP and private consumption
%
Inefficient
monetary
policy
Fall of real
wages
(minimums of
30 years)
Weak
private
consumption
Exports
contraction
2 of the last 4 quarters in recession
PMI in minimums of 2013
GDP grew on average 0.8% (200-2015)
Good exports
(Annual change)
Source: Círculo de Empresarios based on Bloomberg, OECD, 2016
-5,5
-4,5
-3,5
-2,5
-1,5
-0,5
0,5
1,5
2,5
1Q-2014 2Q-2014 3Q-2014 4Q-2014 1Q-2015 2Q-2015 3Q-2015 4Q-2015 1Q-2016
Quarterly
Private consumption
-15
-10
-5
0
5
10
15
24. Japan: public finances
24
*Data for 2015.
** Structural deficit: -4.8%
Source: Círculo de Empresarios based on BIS, JMA, 2016
Continues the high indebtedness
Debt: 247.4% of GDP
Deficit: -5.2% of GDP**
Public sector*
Non-financial private sector
Debt: 167.2% of GDP
Note: Japan allocates more than 24.4% of the anual budget
to the service of the debt...
25. Latin America: diverse outlook
25
Recovery
commodities
Lower
financial
tensions
Inflationary
pressures
... though the economic conditions
improve
Divergences in economic activity growth...
PACIFIC ALLIANCE
LATIN AMERICA
MERCOSUR
+2.3%
-1.1%
-3.7%
Source: Círculo de Empresarios based on BBVA Research, 2016
Pacific Alliance: Chile, Colombia, Per y Mexico
Mercosur: Argentina, Brazil, Paraguay, Uruguay, Venezuela y Bolivia (in proccess of joining)
26. Latin America: uncertain future
26
Second consecutive year of
recession in 2016
Growth prospects will mainly depend on...
Source: Círculo de Empresarios based on IMF, 2016
Real GDP growth (%)
Forecast
RAW
MATERIALS
POLITICAL
STABILITY
EXTERNAL
DEMAND
3 2.9
1.1
-0.4
-1.1
1.7
-6
-4
-2
0
2
4
6
2012 2013 2014 2015 2016 2017
Brazil
Argentina
Mexico
Latin America
27. Brazil crisis will drag on economic growth
of the region
The largest economy in Latin America will continue in recession...
Brasil’s real GDP
%
Forecast
Source: Círculo de Empresarios based on IMF, BBVA Research, 2016
Potential GDP = 1%
Greatest recession in decades
4.4
1.4
3.1
1.1
5.8
3.2
4
6.1
5.1
-0.1
7.5
3.9
1.9
3.0
0.1
-3.8
-3
0.9
-6
-4
-2
0
2
4
6
8
10
2000 2002 2004 2006 2008 2010 2012 2014 2016
27
28. Brazil: significant imbalances
Inflation
9%
Public debt
67%
Approval
rating
25%
Fiscal deficit
–9%
Domestic demand deceleration will drive
inflation down
High rigidities of public spending
The political environment is expected to
remain turbulent with a moderate
approval rating of the new government.
Slowing down the necessary reforms to:
1)increase confidence and 2) reduce
fiscal deficit
However... the risk of the country facing
a balance of payments* crisis decreases
due to:
High FDI 4.6% of GDP
Current account deficit: -2.4% of GDP
Net external creditor (reserves: 22% of
GDP and external debt:19% of GDP).
Source: Círculo de Empresarios based on BBVA Research and World Bank, 2016
* Latest data available: June 5th 2016 28
29. US: positive leading indicators (I)
Improvement of the expectations of the manufacturing sector...
Average 12 months:
50.3
*Indicator that evaluates US industry
Note: The ISM non-manufacturing recovered in June up to 56.6 demonstrating the strenght of growth in the 2Q
Source: Círculo de Empresarios based on ISM, 2016
ISM manufacturing*
51.9
51
50
49.4
48.4
48
48.2
49.5
51.8
50.8
51.3
53.2
47
48
49
50
51
52
53
54
Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16
Expansion
Contraction
29
30. US: positive leading indicators (II)
Rise in building permits...
Building permits
Millions
Source: Censusgov, 2016
Strenght of the real state sector
Sales of newly- built US homes
Annual rate
Source: Fed St Louis, 2016
4,5
4,7
4,9
5,1
5,3
5,5
5,7
30
0
500
1.000
1.500
2.000
2.500
31. US: 1Q slightly better than expected
31
Moderate growth, but revised upward
Growth forecast 2016: [2-2.5%]*
Slow down of the private consumption
and weakness of investment
Qurterly real GDP annualized
%
Consumption, Investment and Exports
%
Source: Círculo de Empresarios based on BEA, 2016
0.8% last estimate
* Average estimations international organisms
1.9
1.3
0.5
0.1
1.9
1.1
3
3.8
-0.9
4.6
4.3
2.1
0.6
3.9
2
1.4
1.1
-2
-1
0
1
2
3
4
5
-10
-5
0
5
10
15 Private Consumption
Private Investment
Exports
34. US: Upward pressure on inflation
Source: OECD, FedAtlanta, 2016
Salary growth (%)
Core inflation (2.2%) surpasses the
Fed’s target of 2% and reaches its
highest rate since beginning of 2012
Upward revisions of inflation due to
the oil price recovery
Upside risk to wage inflation
1,0
1,5
2,0
2,5
3,0
3,5
4,0
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
Core Total Target
Inflation rate evolution (%)
34
35. US: FED monetary policy
If the Fed keeps its strategy (inflation + employment) there is an expectation of at least an
increase in the interest rates this year (probably in December) determined by how the
uncertenties after the Brexit clear out.
2016
2017
2018
Employment
Inflation
Interest
rates
Rise in interest rates possible calendar
Note: The dots represent the possible rises of interest rates
35
36. US: Fed’s caution
After the rise on December, the Fed
maintains interest rates in the range
0,25 - 0,5%
According to Taylor’s Rule, interest
rates should be above 3%
Federal fund interest rates (%)
Source: Federal Reserve, 2016
The delay of the rise of interest rates is,
fundamentally, due to…
BREXIT
CONSOLIDATION
OF THE LABOUR
MARKET
FINANCIAL
TURBULENCE
*Monetary policy rule that determines the
main interest rate in response to inflation
and output gap
0
1
2
3
4
5
6
Jan-08
Jun-08
Nov-08
Apr-09
Sep-09
Feb-10
Jul-10
Dic-10
May-11
Oct-11
Mar-12
Aug-12
Jan-13
Jun-13
Nov-13
Apr-14
Sep-14
Feb-15
Jul-15
Dic-15
May-16
oct.-15
jun.-16
36
37. Europe: the recovery continues
37
Top countries in the eurozone by GDP
growth in the 1Q-16
Annual change
1%
1.4%
1.6%
3.4%
Spain leads the economic growth of
the eurozone, growing more than 2.1
times faster than Germany
1Q-2016 2017* 2018*
1.8% 1.8% 1.9%
EU-28
* Forecast spring European Commission
Source: Círculo de Empresarios based on Eurostat y ECB, 2016
38. Eurozone: growth components
In the private consumption and labour market the dynamic is maintained
JOB
CREATION
PRIVATE
CONSUMPTION
GDP
GROWTH
* Note: Investment will increase 2.9%, but still far from pre-crisis levels
Source: Círculo de Empresarios based on Eurostat and ECB, 2016
+1.7
+1.7%
+1.4%
55% of GDP in 1Q-16
(1.45 bn €)
10.1% unemployment in May
(16.3 millon)
Contribución to growth
1 pp Private consumption
0.3 pp Public spending
0.6 pp Investment
1.4 pp Exports
0.2 pp Inventories
1.8 pp Imports
38
39. Eurozone: economic growth
Quarterly real GDP evolution
Source: Círculo de Empresarios based on Eurostat, 2016
2Q-16: sustained growth, but slightly lower
3.5
-5.5
1.7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
39
40. Eurozone: labour market
40
In spite of the positive data of job creation, there are still 16,3 million
unemployed in the eurozone (21,1 million in the EU-28)
Source: Círculo de Empresarios based on Eurostat, 2016
Unemployment rate by countries
% active population
24.1
21
11.6 11.5
10.1 9.9 9 8.6 8.4 7.8
6.3 6.1
4.2
0
5
10
15
20
25
30
42. Eurozone: ECB monetary policy
42
The ECB maintain interest rates from its last intervention in March of 2016…
Interest rates* Deposit type
0% -0.4%
Monthly purchases Liquidity actions (TLTRO II)
80Bn€ 4
* Currently, there are more than 12 billion in global sovereign debt with negative interest rates
Source: ECB, 2016
43. Eurozone: ECB monetary policy
3.23 bn €
ECB balance (euro)
The ECB balance continues in
in expansion
Eligible marketable assets (%)
Source: Círculo de Empresarios based on ECB and Caixabank Reserach, 2016
Corporate Quantitative Easing starts…
9.6%: AAA-AA
35.2% : A
55.2%: BBBBy ratings...
0
500.000
1.000.000
1.500.000
2.000.000
2.500.000
3.000.000
3.500.000
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
9.8
11
12.1
44
23
Energy Financial Industry Consumption Utilities
43
44. Brexit complicates the scenario
23th referéndum results
Remain
48.1% 51.9%
Leave
(16,141,242) (17,410,742)
Votes
Leave
Remain
UNCERTAINTY
POLITICAL CRISIS
/ CONTAGION
EFFECT
ECONOMIC
SHOCK
FINANCIAL
SHOCK
Brexit main consequences
Source: Círculo de Empresarios based on Bloomberg
44
45. Brexit: firsts impacts on UK
GDP revisions
Ratings downgrades
Monetary policy
S&P from AAA to AA
The Bank of England has
reduced capital
requirements to the banks
from 0.5% to 0%.
The IMF has revised 1.2 PP its
predictions of growth for UK
by 2017
Source: Círculo de Empresarios based on Reuters, 2016
45
46. 1,1
1,2
1,3
1,4
1,5
1,6
1,7
Pound/Dollar Pound/Euro
Brexit: financial shock
Weakening of the pound and doubts about the viability of the financial hub in London
FINANCIAL
SECTOR
7% GDP
EMPLOYMENT
4% GDP
EXPORTS
FINANCIAL SERVS.
2.7% PIB*
Source: Círculo de Empresarios based on ONS, BBVA Research, 2016
* 40% of total goes to the EU
Pound vs. Euro and Dollar
Worst level of the pound
since 1985 and since Brexit
has lost a 13% and a 11%
against the $ and the €.
Since 2007, the pound has
fallen down a 20% against
the $.
46
47. Brexit: economic shock
Forecasts about the impact of Brexit until 2018
GDP
Unemployment
Wages
Housing
(prices)
Deficit
-3.6%
+520,000
Baseline
scenario
Adverse
scenario
-6%
+820,000
-2.8%
-10%
-4%
-18%
+24 bn £ +39 bn £
Note: The scenario will depend on the final agreement between the EU and the UK
Source: Círculo de Empresarios based on HM Treasury, 2016
+0.93 % of GDP +1.5 % del PIB
47
48. Brexit: political uncertainty
Since UK referendum
Short term (2020)
Long term
(after 2020)
• National policy impasse
• Stagnation in the
European project
• Eventual referendum in
Scotland
• Regulatory uncertainty
• EU political guidance
• Risk for the eurozone
integration
Brexit threatens political cohesion not only in UK but also in the European Union
Source: Círculo de Empresarios based on AFI, 2016
48
49. Italy: triple risk
1
ANEMIC
GROWTH
2
BANKING
SECTOR
3
POLITICAL
UNCERTAINTY
1 Following the crisis, Italy has recovered less
than the average of the eurozone
2 Doubts about the Italian banking sector
solvency
3 Political risk associated to the referendum
on its Constitution
Nominal GDP growth: Italy vs. Eurozone (average)
2006=100
Source: Círculo de Empresarios based on Eurostat, 2016
Non-performing loans (NPL’s)
% total
Source: Círculo de Empresarios based on World Bank, 2016
5,8 6,3
9,4 10
11,7
13,7
16,5
18 18
0
3
6
9
12
15
18
21
2007 2008 2009 2010 2011 2012 2013 2014 2015
NPL’s= € 350 billion (21.4% of GDP)
95
100
105
110
115
120
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
eurozone Italy
49
50. 20
25
30
35
40
45
50
55
60
65
Commodities: recovery in oil prices
Oil price increases, encourage by the lower supply dinamism
51.23
26.21
Source: Círculo de Empresarios based on St.LouisFed, IEA, 2016
Disruptions in Canada + Nigeria - 3.6 mbd
Despite the increse of oil prices, the excess of
supply is slightly higher than 1 mbd
WTI evolution, $
50
51. Commodity prices (II)
51
Commodity prices evolution
2005=100
SILVER ZINC GOLD SUGAR
NATURAL
GAS
Highest increases since January 2016...
Source: IMF and Bloomberg, 2016
50
90
130
170
210
250
290
Jun-07
Sep-07
Dic-07
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
Dec-11
Mar-12
Jun-12
Sep-12
Dic-12
Mar-13
Jun-13
Sep-13
Dic-13
Mar-14
Jun-14
Sep-14
Dic-14
Mar-15
Jun-15
Sep-15
Dic-15
Mar-16
Jun-16
Total Non-energy Energy Metals
52. -20 -15 -10 -5 0 5 10 15 20
Japanese yen
Brazilian real
Russian ruble
Canadian dollar
Australian dollar
Swiss france
Euro
Turkish lira
Indian rupee
Chinese yuan
Argentine peso
Pound sterling
Currency markets
52
Change since January 2016 against the dollar
%
After a minimums of 31 years, the pound is the currency that suffers a
greater drop against the dollar…
Brexit
Source: Círculo de Empresarios based on Bloomberg, 2016
Minimums 2010
“safe haven asset”
IMPACT
China impact +
commodity
prices
53. 80
85
90
95
100
105
Jan.-4th Jan.-19th Feb.-12th Mar.-4th Mar.-29th Apr.-19th May.-10th May.-31st Jun.-21st
IBEX 35 EUROSTOXX 50
Financial markets (I)
The surprise of the Brexit has generated volatily and drops in equity markets
Greatest decline of
the Ibex in its history
Source: Círculo de Empresarios based on Investing, 2016
-12.35% -7.1% -10.9%24 th june drops
Ibex 35 and Eurostoxx 50
January 1st 2016=100
53
54. -43
-39
-32
-26 -25
-23 -22 -21
-19
-8
-50
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
Financial markets (II)
After Brexit... The European banking sector capitalization has fell down
by more than € 200 bn
- 24,9 bn €
%
Source: Círculo de Empresarios based on Goldman Sachs, 2016 54
55. Stock markets. Year to date yield
YTD global stock markets yields
January – July 12th 2016
Global uncertainty and Brexit affect stock markets
Volatility index (V2X) jumps after brexit
... With a high capital flow towards safe haven assests
GERMAN
BOND
US
BOND GOLD
JAPANESE
YEN
US
DOLLAR
Source: Círculo de Empresarios based on Bloomberg, 2016
8.2
6
-6.4 -7.3
-9.4 -10.3
-12
-18
-22.5-25
-20
-15
-10
-5
0
5
10
Ftse 100
(United
Kingdom)
S&P 500
(USA)
Dax
(Germany)
Cac 40
(France)
Shanghai
Composite
(China)
Eurostoxx 50 Ibex 35
(Spain)
Nikkei
(Japan)
FTSE MIB
(Italy)
55
57. Oil prices
Financial costs
Expansive monetary policy and
neutral fiscal policy
Growth in the EMU
Growth boosts
57
1
2
3
5
6
Improvements in the labour
market
Rising exports to the European
market
Domestic demand
4
7
58. Forecasts: the recovery continues…
58
2016* 2017*
2.7%
2.3%
*Forecasts
Source: Bank of Spain, June 2016
… but at a moderate pace.
3.2%
2015
The Governement has revised its forecasts upward for 2016, from 2.7% in April
up to 3%.
59. Forecasts 2016: composition of growth
59
GDP annual growth in 2016 = 2.7%.
• Private consumption = 3%
• Public consumption= 1.1%
• GFCF = 4.8%
• Exports = 4.3%
• Imports = 5.2%
Domestic demand
0,2 pp
2.9 pp
External demand
contribution to growth
contribution to growth
Source: Círculo de Empresarios, based on Bank of Spain data, June 2016
60. 60
Domestic demand and services exports support the recovery
Private consumption leads the
recovery in Spain:
+ employment growth
+ income
+ credit
+ non-financial wealth
Despite national and
international uncertainties, Spain
keeps its growth rate above
OECD and eurozone
-8
-6
-4
-2
0
2
4
6
GDP (interannual change) and contribution of domestic and
external demand (pp) Domestic demand
External demand
GDP Spain
GDP eurozone
OECD GDP
Source:Círculo de Empresarios,based on NSI,Bank of Spainand OECD, 2016
GDP growth
61. 61
Industry
Good performance of industrial
production
By regions, Catalonia, Andalusia
and Valencian C. lead industrial
production, followed by Basque
Country, Castile and Leon and
Madrid
-25
-20
-15
-10
-5
0
5
10
2016M05
2016M01
2015M09
2015M05
2015M01
2014M09
2014M05
2014M01
2013M09
2013M05
2013M01
2012M09
2012M05
2012M01
2011M09
2011M05
2011M01
2010M09
2010M05
2010M01
2009M09
2009M05
2009M01
2008M09
2008M05
2008M01
Industrial Production Index
Source: NSI, 2016
18.9
13.4
9.4
6.1
5
18.8
5.2
3.1 3.5
1.7
2.6 2
1.1 1.6
0.7
3.9
2.5
23.1
11.4 10.6
9.6
7.3 7 6.8
5 4.9
3.7 3.3
2.3 1.3 1.3 1.1
0.9 0.4
Industry by regions
% GDP; % national industry
% GDP % National industry
Source:NSI,2016
62. 62
Labour market
June 2016:
▼ Unemployed = 124,349 vs. May
(48,579 in seasonally adjusted terms)
▲ Affiliates = 98,432 vs. May
▲ Registered contracts = 1,920,340
Unemployment rate in Spain, May 2016 = 19.8% vs. eurozone average = 10.1%
16.393.866
17.760.271
4.763.680
3.767.054
0
1.000.000
2.000.000
3.000.000
4.000.000
5.000.000
6.000.000
16.000.000
16.500.000
17.000.000
17.500.000
18.000.000
18.500.000
19.000.000
19.500.000
20.000.000
2007
2008
2009
2010
2011
2012
2013
2014
2015
Jan16
Feb16
Mar16
Apr16
May16
Jun16
Affiliates
Evolution of affiliation to Social Security and registered
unemployment
Persons Affiliates Unemployed
Unemployed
Source: Círculo de Empresarios based on Ministry of Employment data, July 2016
65. Unemployment in regional administrations 1Q 2016
65
Galicia
18.24%
(▼3.6)
Heterogeneity between admionstrations
% of working population
Change in percentage points (pp)
vs. 1Q 2015
Asturias
19.5%
(▲0.5)
Cantabria
18.9%
(▲0.4)
Basque C.
12.8%
(▼3.6)
La Rioja
14.38%
(▼3.2)
Navarre
14.25%
(▼1.4)
Aragon
15.28%
(▼3.3)
Catalonia
17.42%
(▼2.6)
Valencian C.
21.84%
(▼2.4)
Murcia
22.1%
(▼4.6)
Andalusia
29.7%
(▼3.9)
Balearic Islands
18.41%
(▼3.9)
Canary Islands
26%
(▼4.8)
Extremadura
29.13%
(▼1.1)
Castile and Leon
18.33%
(▼2.1)
Madrid
16.81%
(▼1)
Castile-La Mancha
25.45%
(▼3.2)
Source: Círculo de Empresarios, based on NSI data, 2016
<15%
> 20%
>15-20%
National unemployment
21% of working population.
Structural unemployment
18%
Ceuta
30.7%
(▼5.6)
Melilla
26.2%
(▼4.7)
66. 66
Prices
In 2016:
Interannual CPI in Spain
returns to negative values
Core inflation goes
down
Spread of prices with
the eurozone has
increased again
-0.8
0.6
0.1
-1,5
-1
-0,5
0
0,5
1
1,5
2016M06
2016M05
2016M04
2016M03
2016M02
2016M01
2015M12
2015M11
2015M10
2015M09
2015M08
2015M07
2015M06
2015M05
2015M04
2015M03
2015M02
2015M01
2014M12
2014M11
2014M10
2014M09
2014M08
2014M07
2014M06General and core inflation
Interannual change %
CPI Spain
Core inflation Spain*
CPI eurozone
* Without energyand non-processedfood
Source:NSI,2016
67. 67
Financial conditions
The increase of credit supports the
recovery: it increases for consumption,
agriculture and industry
Default rate falls down while it is still
very high in the contruction and
developer sectors
Credit and default rate in Spain 1Q 2016
Bn €; %
Balance
1Q 2016
Interannual
change
Default rate
Households (housing) 547 -4.7 4.8
Households (consumption) 112 3.3 8.8
Productive activities 616 -8.8 14.6
Construction 43 -11.2 29.1
Developer 129 -12.1 27.6
Services 316 -10.7 9.2
Industy 110 0.7 10.2
Agriculture 19 5.3 9.6
Total 1.275 -6.1 9.9
Source: CaixaBank based on Bank of Spain data, 2016
68. Public accounts – revenues, expenditures
and balance
68
Structural balance = 3%.
Doubts about the target
compliance of déficit in
2016 (3.7%).
-1,0
-0,5 -0,4 -0,4
0,0
1,2
2,2
2,0
-4,4
-11,0
-9,4 -9,5
-10,4
-6,9
-5,9
-4,5
-3,4
-12
-10
-8
-6
-4
-2
0
2
4
30
32
34
36
38
40
42
44
46
48
50
Public revenues and expenditures
% GDP
Revenues
Expenditures
Balance
* Forecasts
Source:IMF, 2016
69. Public and private debt
69
Households and companies still reduce its debt,
currently = 149.8 % of GDP.
0
200.000
400.000
600.000
800.000
1.000.000
1.200.000
1.400.000
may-07
nov-07
may-08
nov-08
may-09
nov-09
may-10
nov-10
may-11
nov-11
may-12
nov-12
may-13
nov-13
may-14
nov-14
may-15
nov-15
may-16Non-financial sectors debt
Million €
PPAA
Non-financial companies
Households
Source:Bank of Spain,2016
58,0
54,2
51,3
47,6
45,3
42,3
38,9
35,5
39,4
52,7
60,1
69,5
85,4
93,7
99,3
99,2
100,5
99,0
100,0
PPAA debt
% GDP
Source: Bankof Spain, 2016
Public debt has incresed to more than 100% of GDP
70. Social Security
70
Social Security deficit has
increased to16,767 million euros
(1.55% of GDP).
According to the Círculo de
Empresarios’ last estimates, if the
pace of withdrawals were to
continue, the Reserve Fund will
be dried up in 2018.
July 1st 2016 → 8,700 million were
withdrawn from the Fund to guarantee
a punctual extra payment of
contributory pensions, approximately
5,000 million more than in the same date
of the previous year
Current balance = 25,176 millions €
(2.33% of GDP).
1,700
1,363
1,530
410
3,500
1,000
1,000
720
5,000
428
5,500
500
8,000
1,300
3,750
7,750
1,750
8,700
Social Security Reserve Fund withdrawals
since 2012
Million euros
Source:Social Security's Treasury,2016
80.000
90.000
100.000
110.000
120.000
130.000
140.000
150.000
-20.000
-15.000
-10.000
-5.000
0
5.000
10.000
15.000
20.000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Social Security accounts
Million euros
(+) Superavit / (-) Deficit
Revenues
Expenditures
Source:Ministryof Employment and Social Security,2016
71. EUROPE
63,3
ASIA
19,1
AMERICA
9,8
AFRICA
7,6
OTHER
0,2
EUROPE
72,9
AMERICA
9,9
ASIA
9,4
AFRICA
6,3
OTHER
1,5
71
Exports
January – April 2016 (interannual change)
▲ 1.8% (83,345.8 M€)
Imports ▼ -0.8% (88,926.6 M€)
Trade balance ▼ 28.2% in DEFICIT (-5,580.8 M€)
▼ 41.8% in energy deficit
Geographical distribution (%)
TOP3SECTORS
ExportsImports
EU
Rest of
Europe
5.6%
67.3%
EU
Rest of
Europe
57.5%
5.8%
China
8,6%
Source: Círculo de Empresarios, based on Ministry of Economy data, June 2016
External sector
China
1.9%
-94.159,9
-24.173,9
-5.580,8
-100.000
-50.000
0
50.000
100.000
150.000
200.000
250.000
300.000
Exports, imports and trade balance
Million €
Exports Imports Trade balance
Exports % / total Imports % / total
Capital assets 19.9 Capital assets 21.2
Automobile 18.9 Chemistry 16.4
Food, beverage and
tobacco
17.1 Automobile 14.9
72. Export companies
January – April 2016
72
85,474 export companies.
68.6% (58,628) exported
less than 50,000 euros.
31.4% (26,846) exported
more than 50,000 euros →
99.6% del valor total.
Regular export companies = 43,674 (51% of the total). They exported
79,471.3 million euros, 92.97% over total.
External trade January-April 2016
nº % of the total Million € % of the total
Total 85.474 100 83.345,8 100
x < 50.000 € 58.628 68,6 366,3 0,4
x >/= 50.000 € 26.846 31,4 82.979,5 99,6
50.000 € </= x < 0,5 M € 15.280 17,9 3.025,1 3,6
0,5 M € </= x < 5 M € 9.340 10,9 14.871,2 17,8
5 M € </= x < 50 M € 2.044 2,4 26.600,5 31,9
50 M € </= x < 250 M € 149 0,2 15.067,2 18,1
x >/= 250 M € 33 0,0 23.415,5 28,1
Source: Ministry of Economy, 2016
Export companies Export value
73. Interest rates and risk premium
73
The German bond is
in negative values.
After Brexit and Spain´s
general elections, risk
premium has recovered
to March levels.
0
20
40
60
80
100
120
140
160
180
-0,5
0
0,5
1
1,5
2
2,5
3
3,5
Ten years bond yields. Spain and Germany (%)
Risk premium (pb)
Spain
Germany
Risk premium
Source: Círculo de Empresarios based on Bank of Spain data, 2016
Risk premiumInterest rate
74. Ibex 35
74
Ibex 35 fell down a12.35% the day
after Brexit.
After general elections it has
recovered (▲ 8.4% between June
27th and July 11th).
7.500
7.700
7.900
8.100
8.300
8.500
8.700
8.900
9.100
9.300
9.500
11.07.201601.07.201623/06/201615/06/2016
Ibex 35
Source:Investing,2016
24/06/16
Post-Brexit
75. 75
Spain´s position in international rankings
Hong Kong
Switzerland
USA
SPAIN
1
2
3
34
USA
Canada
Australia
SPAIN
1
2
3
12
Iceland
Denmark
Austria
SPAIN
1
2
3
25
USA
China
India
SPAIN
1
2
3
28
China
USA
Germany
SPAIN
1
2
3
25
World Competitive Index
2016
Global Peace Index 2016
Index on Digital Life 2016
Renewable Energy Country
Attractiveness Index 2016
Global Manufacturing
Competitiveness Index 2016
Source: IMD, 2016 Source: Telefónica, 2016
Source: Institute for Economics and Peace, 2016Source: EY, 2016
Source: Deloitte. 2016
Norway
Australia
Denmark
SPAIN
1
2
3
19
Better Life Index 2016
Source: OECD, 2016