The Spanish economy grew 0.7% in the second quarter of 2016, a slowdown attributed to weaker business investment. Unemployment fell sharply in June while job affiliates grew, though remain below 2007 levels. The Social Security reserve fund was drawn down by €8.7 billion in July 2016 to pay pensions. Manufacturing and service sector PMIs both increased in June, indicating growth, despite slower domestic orders. The document then analyzes consequences of Brexit, including downward growth forecasts, declines in the British pound and euro, stock market declines, risks to the British housing market, and uncertainty around EU citizens living in the UK and UK citizens living in the EU.

1. July 2016
O
SPAIN
Growth
According to the Bank of Spain, our economy
increased 0.7% in the 2Q of 2016 (as against
0.8% in the 1Q of 2016), fundamentally due to
a slow-down of business investment. In addi-
tion, they foresee a diminishing strength of
tailwinds for our economy: the lower oil
prices, the depreciation of the euro and the
fiscal policy, with contributions to GDP of 0.6,
0.6 and 0.5 points, respectively.
Likewise, the Bank of Spain forecasts a rise of
2.7% this year, 2.3% in 2017, and 2.1% in 2018.
In contrast, the Government has reviewed its
predictions for 2016 and are now up to 3%
(vs. 2,7% estimated in April).
Labour Market, June 2016
Registered unemployment was at 3,767,054
persons (48,579 in terms of seasonally
adjusted), with 124,349 less unemployed than
in May, the second largest reduction in history.
The average number of affiliates reached
17,760,271 persons, 3% more year-on-year, far
from the 19.4 million of June 2007.
Social Security Reserve Fund
The 1st
of July of 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withdrawn from the Fund to guarantee a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. The
actual balance of the pension savings, at
acquisition price, it’s about €25,276 million
(2.33% 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.
PMI (June 2016)
According to the PMI Markit Index, the
manufacturing sector improved its pace of
growth, increasing up to 52.2 points (51.8 in
may) due to output growth, despite slower
new order progress of the national market.
In the Eurozone this index reached its
maximum in six months, 52.8 points (51.5 in
May).
By countries, the evolution has been divergent:
For its part, in the service sector, the Business
Activity Index registered 56 point in June
(55.4 in May), the greatest advance since
November.
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
jan-16
feb-16
mar-16
apr-16
may-16
jun-16
Affiliates
Evolution of affiliates to Social Securityand
registered unemployment
Persons Average affiliates Unemployed
Unemployed
Source: Círculo de Empresarios based on data from the
Ministry of employment and social security, july 2016
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
Manufacturing PMI
May June Evolution
Germany 52.1 54.5 ▲
Austria 52.0 54.5 ▲
Italy 52.4 53.5 ▲
Ireland 51.5 53.0 ▲
Spain 51.8 52.2 ▲
Netherlands 52.7 52.0 ▼
Greece 48.4 50.4 ▲
France 48.4 48.3 ▼
Source: Markit, 2016
Así está…
The economy
www.circulodeempresarios.org
(+34) 915-781-472
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2. ‘Así está…The economy’, a publication of the Círculo de Empresarios produced by its Department of the Economy, contains information and
opinion from reliable sources. However the Círculo de Empresarios does not guarantee its accuracy and does not take responsibility for any errors
or omissions. This document is merely informative. As a result, the Círculo de Empresarios is not responsible for any uses that may be made of the
publication. The opinions and estimates of the Department can be modified without any warning.
Brexit – Some consecuences
• Downward revision of short-term
growth forecast, for UK and the EU.
The IMF forecasts a reduction of the
British GDP between 1.5 and 4.5 pp until
2019 if they leave the EU.
In the long-term the economic activity
will depend largely on the new
relationship that will be established if the
Brexit is finally materialized.
• The pound sterling hits new lowsagainst
the dollar ($1.30), minimums since 1985,
and under €1.20.
The drop of the pound reduces the pur-
chasing power of the British, which could
have a negative impact on Spain since
they represent 23% of the total of foreign
tourists (68.1 million), which spend an
equivalent of 1.35% of the Spanish GDP
(€14,081 million), and 21.34% of total for-
eign home sales.
For its part, the euro also lost 3.5% against
the dollar.
• In the stock markets the escape from the
equity market and the search of haven as-
sets have situated the 10-year bond yield
below 0 (-0.199%).
• Fear of a housing bubble burst. The sec-
tors that have been hit the hardest in Lon-
don’s stock market were real estate and
the financial sector. These losses are ex-
tended to fund agents. In particular, three
of the major real estate British funds, due
to the rise of money withdrawals and to a
potential “problem of liquidity”, have can-
celled temporarily the refunds to their
participants (blocking nearly €11,000
million).
• The Bank of England has cut €6,800 mil-
lion capital requirements to the banks in
order to increase the credit of the private
sector up to 177,000 million.
• A likely weakening of the political unity
in the EU caused S&P to downgrade UK’s
credit rating from AAA to AA and EU’s
from AA+ to AA.
• The EU will lose its second largest con-
tributor to EU budget, with €11,341.6 mil-
lion in 2014 (8% of the EU’s total budget
and 0.52% of UK GDP), receiving € 6,985
million (0.31% of GDP).
• For UK, trade with the EU represents
45% of its exports and 53% of its imports.
For its part, Spain maintains a significant
trade surplus with the UK.
• 1.3 million British workers in the EU and
the 3 million European residents in the
UK (200,000 Spanish), 2/3 with regular
employment, will have uncertainty over
the final status.
Impact of Brexit on GDP
Media prevs. economistas consultados; % variación anual
2016 2017 2016 2017
Brexit 1.4 0.7 1.6 1.4
No-Brexit 1.9 2.1 1.6 1.7
Difference -0.5 -1.4 0 -0.3
Source: Deloitte, 2016
United Kingdom Eurozone
1.17
1.31 1.30
1.49
1,15
1,20
1,25
1,30
1,35
1,40
1,45
1,50
Exchange rate of the pound against the euro
and the dollar
₤/$
₤/€
Source:Investing,2016
-12.9%
-10.3%
9.000
10.000
11.000
12.000
13.000
14.000
15.000
16.000
17.000
18.000
19.000
Trade flows Spain-United Kingdom
Million euros
Exports to UK
Imports from UK
Source:Datacomex,Ministryof Economy and Competitiveness ,2016
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(+34) 915-781-472
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