Quarterly Report Q3 2015 Circulo de Empresarios

1. Quarterly Report
on the Spanish Economy
Q3 2015
Círculo de Empresarios
Madrid, October 2015

2. 2
GLOBAL

3. GDP PREDICTIONS 2015
3
Uneven path of growth
USA
3.1%
Mexico
3%
Brazil
-1%
Spain
2.5%
UK
2.7%
France
1.2%
Italy
0.5%
South
Africa
2%
India
7.5%
China
6.8%
Russia
-3.8%
Japan
1%
ASEAN-5
5.2%
Australia
2.8%
Germany
1.6%
USA
2.5%
Mexico
2.5%
Brazil
-1.5%
Spain
3.2%
UK
2.5%
France
1.3%
Southafrica**
2%
India
7.6%
China
6.7%
Japan
1%
Asia*
4.9%
Australia
2.3%
Germany
1.5%
Canada
1.5%
Eurozone
1.5%
Latin
America
0.3%
Pacific
Asia
5.7%
Russia
-3.8%
Source: BBVA Research, September 2015
*Excludes China
**OECD

4. Global growth
Source: Círculo de Empresarios based on La Caixa Research, 2015
4
2013
2016
2014
2015 20162015
Forecasts Moderation in global
growth
China continues
desacelerating
Further weakness in
Brazil in 2015
-4
-2
0
2
4
6
8
10
Real GDP growth and forecasts
%
Advanced Emerging China Brasil Global

5. Impact of China’s desaceleration
-0.47%
EMERGING GLOBAL ADVANCED
-0.31%
-0.11%
Source: Círculo de Empresarios based on Bank of Spain, 2015
5
Impact on real GDP growth in case of a reduction in potencial
growth and domestic demand of 1 percentage point in China
(average 2016-2018)

6. China: evolution and geographical
distribution of the external sector
China’s main customers
% of exports ,2014
Source: Ciírculo de Empresarios
based on Santandertrade, 2015
China’s foreign-exchange
reserves fell by 285 billion $
since 2014
USA: 17%
Hong-Kong, China: 15,5%
South Korea: 4,3%
Japan: 6,4%
Germany: 3,1%
China’s main suppliers
% of imports, 2014
USA: 8,2%
Australia: 8,2%
South Korea: 9,7%
Japan: 8,3%
Germany: 5,4%
6
External sector Reserves $
Sharp fall in imports were
driven by falling domestic
demand
3,8 trllion $
3,55 trillion $
-5,5
-13,8
3.400
3.500
3.600
3.700
3.800
3.900
-20
-15
-10
-5
0
5
10
2013 2014 Q1 2015 Q2-2015 jul-15 aug-15
Currency reserves Exports
Imports Tendency
Current account and currency reserves evolution
%, billions $
aug-15
Renmimbi depreciation (3%)
Jul-15 Aug-15

7. China: volatility in financial markets
Shanghai Composite evolution
Jun14-sep-15
Jun-14 Apr-14 Jun15 Sep-151.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
5.000
5.500
2012 Nov-14 Sep -20154
5
6
7 China’s interest rates evolution
2012-actually
May-15 Aug-15
5 cuts since
november 2012
Time
variation
Interest
rate
06 Jul 2012 6%
21 Nov 2014 5,6%
28 Feb 2015 5.35%
10 May 2015 5.10%
27 Jun 2014 4,85%
25 Aug 2015 4,6%
Source: Círculo de Empresarios based on Reuters and Bloomberg, 2015
Interest rates variations
7Source: Círculo de Empresarios based on Reuters and Bloomberg , 2015
Chinese stock market is a
reflection of the health
and monetary policy in
China

8. China: indebtedness
Source: Círculo de Empresarios based on BIS, IMF and Natixis, 2015
8
China
Public debt evolution
in % of GDP
Debt evolution by sectors
in % of GDP
Japan and China: 7 years of
debt-increasing
Source: Círculo de Empresarios based on BIS, 2015
Japan: indebtedness focuses on
the public sector (222% of GDP)
China: high private debt
(193% of GDP)
Japan
46,2 %
247 %
150
200
250
300
20
30
40
50
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
China
Japan
66%
105%
222%
393%
36%
157%
41%
235%
0
50
100
150
200
250
300
350
400
450
Families Companies Government Total
Japan China

9. Brazil: financial markets turbulences
Brazilian exchange rate
(USD/BRL) , Jan14-Sep15
9
40.000
42.000
44.000
46.000
48.000
50.000
52.000
54.000
56.000
58.000
60.000
2,0
2,5
3,0
3,5
4,0
4,5
Jan-14 Jan-15 Sep-15Sep-14
May-15 Jul-15 Aug-15 Sep-15
Brazilian stock market
(BOVESPA), May15-Sep15
points
Source: Círculo de Empresarios based on Bloomberg, 2015
BRL/USD
BOVESPA
Jan15-Sep15: -52%
Sep14-Sep15: -66%
Jan15-Sep15: -4%
Sep14-Sep15: -17%

10. Lower commodity prices
10
54%
48%
Aluminium Copper Zinc
46%
31%
Gold
23%
Oil
12%
China’s share of global consumption
% of global consumption
-12%
-8%
-4%
0%
4%
8%
12%
Oil volatility
Jul-15 Ago-15 Sep-15
Change in commodity prices
YoY, YTD
Source: IMF, 2015
* Copper,Aluminium , Gold, Iron, Tin, Nickel, Zinc, Lead
*
Source: World Economic Fourm, 2015
Partly due to China’s
weakness
Cotton
-15%
-8,70%
-3,40%
-11%
-30%
-52%
-54%
-20%
-60% -50% -40% -30% -20% -10% 0%
Metals
Fuel
Petroleum
Non-Fuel
aug14 - aug15
jan15-aug15

11. Latin America: Growth and prices
11
Latin America GDP outlook for 2015 and 2016
%
Source:,Círculo de Empresarios based on IADB , 2015
Inflation expectations for Latin America, 2015 and 2016
%
Will incease
in 2015
Will increase
in 2016
Downward revision to Latin
American growth, excluding
Mexico and Chile
Prices in Latin America
remains heterogeneous=
4
3
3,7
3,5
2,5 2,5
2,3
2,8
4,2
4
3,7
3,6
3,2 3,1 3
2,5
0,3
-1
0
1
2
3
4
5 2015
2016
2015 revised estimate
-1,7
0
2
4
6
8
10
2015 2016

12. USA: the economy gradually expands
Unemployment
continues to recede
gradually
Consolidation in
employment growth and
a lower labor force
participation rate at the
time
Labor force and unemployment rate
(%)
12
Source: Círculo de Empresarios based on Bureau of Labor Statistics, 2015
Employment change Not in labor forceNot in labor force and employment change
Miles
(left axis)
(right axis)
L. Force
62,6%
August unemployment
rate:
5,1%
0
2
4
6
8
10
12
58
59
60
61
62
63
64
65
66
67
68
Labor force participation rate
Unemployment rate
0
10.000
20.000
30.000
40.000
50.000
60.000
70.000
80.000
90.000
100.000
-1000
-800
-600
-400
-200
0
200
400
600
Employment change
Not in labor force
(left axis)
(right axis)

13. Contribution to percentage change in GDP growth (pp)
USA: GDP continued growth momentum
2Q-2015 GDP:
17.913 trillion $
Source: Círculo de Empresarios based on Bureau of Economic Analysis, 2015
USA GDP Growth,
YoY
,
Favourable external sector
Much stronger acceleration
in private consumption
13
1,9
1,1
3
3,8
-0,9
4,6
4,3
2,1
0,6
3,9
-2
-1
0
1
2
3
4
5
3,9%
0,6%
-4 -2 0 2 4 6
Real GDP
Personal consumption
Private investment
External sector
Public consumption
1Q-2015
2Q-2015

14. Stock markets
Changes in stock markets
YTD
14
Higher
profitability
ITALY
Source: Círculo de Empresarios based on Bloomberg, 2015
-3%
2,2%
-9,20%
8%
-8%
-4%
-0,35%
-22%
-17%
-21%
-14%
-12%
-21%
-17%
-30% -20% -10% 0% 10%
DAX
CAC-40
IBEX-35
FTSE-MIB
S&P 500
EURO STOXX
Nikkei
Since max.
jan15-sep15

15. Impacts resulting from stock markets
Effects associated with a fall in stock markets (20%) and a sharp hike in interest rates
(100 basic points) in global stock markets
(average 2016-2018)
-0.15%
ADVANCED GLOBAL EMERGING
-0.13%
-0.12%
15Source: Círculo de Empresarios based on Bank of Spain, 2015

16. Exchange rates adjustments
Currency depreciations against U.S. dollar
YTD
Further depreciation and
volatility of the euro against the
US dollar
Expectations of an imminent
increase in monetary policy
rates in the United States
Fuente: Bloomberg, 2015
16
The only currency
which appreciates
against the US dollar:
Swiss franc: +2%
Source: Círculo de Empresarios based on ECB, 2015
Euro – dollar evolution
Jun14 -Sep15
Jun-14 Mar-15Jan-15 Sep-15
(right axis)
(left axis)
-6%
-2,70%
-2,40%
-14%
-13%
-17%
-14%
-20% -15% -10% -5% 0%
Euro
Pound
Renminbi
Norwegian krone
Australian dollar
Canadian dollar
Russian ruble
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
-3%
-2%
-1%
0%
1%
2%
3%
Period to period change
Eur/usd

17. Risks
17
Source: Círculo de Empresarios

18. Refugee crisis in Europe
18
Main entry routes to Europe, January-July 2015
Spain
6,698
From:
- Syria: 57%
- Guinea: 10%
- Côte d´Ivore: 5%
Italy
91.302
From:
- Eritrea: 26%
- Nigeria: 12%
- Sub-Saharan Africa: 11%
Greece
132,240
From:
- Syria: 59%
- Afghanistan: 25%
- Pakistan: 5%
Hungary
102,342
From:
-Afghanistan: 29%
-Syria: 28%
- Kosovo: 23%
Possible contribution to GDP
growth
+0.2 pp
(Source: Credit Suisse, 2015)
Source: OECD, 2015

19. 19
SPAIN

20. Obstacles to growth
20
Deteriorating global growth prospects
Slow down in the emerging economies,
notably China
Restraint of euro depreciation
Spain political scene
Increase in Spanish risk premium
1
2
3
4
5

21. Development of growth
21
Possible weaker growth in 3Q 2015 = 0.8%
0.9
1 0.8
-0,5
0
0,5
1
1Q 2015 2Q 2015 3Q 2015*
GDP Q/Q change, 1Q - 3Q 2015
Domestic andexternal demand contributionto GDP growth (pp)
* Estimated
-8
-6
-4
-2
0
2
4
6
1Q 2003 4Q 2004 3Q 2006 2Q 2008 1Q 2010 4T 2011 3Q 2013 2Q 2015
GDP (y/y change)
Domestic and external demand contribution
to annual growth (pp)
Domestic demand
External demand
GDP
Source: Círculo de Empresarios, based on INE and Bank of Spain, 2015

22. Composition of growth
22
Predictions 2015: GDP annual growth = 3.2%
Regarding the 2Q 2015, the increase in gross fixed capital formation (GFCF) is the largest
among the components of domestic demand
• Private consumption = 3.4%
• Public consumption = 1.1%
• GFCF = 6%
• Exports = 5.1%
• Imports = 6.2%
Domestic demand
0.2 pp
3.4 pp
External demand
contribution to growth
contribution to growth
Source: Círculo de Empresarios, based on FUNCAS (September 2015)

23. Construction and housing
23
From the 1Q 2014, recovery in the investment in construction
98
99
100
101
102
103
104
105
106
107
2015Q22015Q12014Q42014Q32014Q22014Q12013Q42013Q3
Investment in construction: housing and others
Index 100 = 2Q 2008
Total
Housing
Others
Source: Círculo de Empresarios based on INE, 2015

24. Prices
24
Energy prices drag down inflation
Spanish
competitiveness
gain
-2,0
-1,0
0,0
1,0
2,0
3,0
4,0
5,0
6,0
Annual development of Spanish general CPI and of Eurozone HCPI
y/y %
Spain
Eurozone
Source: Círculo de Empresarios based on INE and ECB, 2015

25. 25
Exports
January – July 2015 (y/y change)
4.5% (to 161,507.3 M€)Imports
5.5% (to 148,630.8 M€)
Trade balance 6.1% in DEFICIT (to 12,876.5 M€)
30.5% in energy deficit,
because of lower energy prices
Geographic distribution (%)
SECTORS: TOP 3
ExportsImports
EU
Rest of
Europe
5.8%
64.6%
EU
Rest of
Europe
55.7%
5.3%
China
8.3%
Source: Círculo de Empresarios based on
Ministry of the Economy, September 2015
External sector
Exports % / total Imports % / total
Capital assets 19.7 Capital assets 19.8
Automobile 17.2 Chemistry 16.3
Food, beverage and
tobacco
16.2 Energy 14.7
Source: Círculo de Empresarios based on
Ministry of the Economy, September 2015
EUROPE
61
ASIA
18.7
AMERICA
11
AFRICA
8.9
Others
0.3
EUROPE
70.4
AMERICA
11.4
ASIA
9.6
AFRICA
6.5
Others
2.3

26. 0%
0,0%
0,1%
0,2%
0,3%
0,4%
0,5%
0,6%
Limited direct exposure to China and Greece
0,0%
0,2%
0,4%
0,6%
0,8%
1,0%
1,2%
1,4%
1,6%
1,8%
2007 2008 2009 2010 2011 2012 2013 2014 2015
0,0%
0,2%
0,4%
0,6%
0,8%
1,0%
1,2%
1,4%
1,6%
2007 2008 2009 2010 2011 2012 2013 2014 2015
Exports from Spain to China,
% of total exports
Exports from Spain to Greece,
% of total exports
Source: BBVA Research, Datacomex
Source: BBVA Research, Datacomex
Source: BBVA Research, BIS Source: BBVA Research, BIS
Financial assets in China
% of each country GDP
Financial assets in Greece
% of each country GDP
Low exposure
Low exposure
26
0%
0%
2%
4%
6%
8%
10%
12%
UK USA Japan Taiwan,
China
France Germany Spain

27. Risk premium
27
Spanish risk premium slightly over the Italian one
0
100
200
300
400
500
600
Development of Spanish and Italian risk premium
with respecto to 10 years German bond yield
Spain
Italy
Source: Círculo de Empresarios based on ECB and Bank of Spain, 2015
110
115
120
125
130
135
140
145
150
155
02-sep.
04-sep.
06-sep.
08-sep.
10-sep.
12-sep.
14-sep.
16-sep.
18-sep.
20-sep.
22-sep.
24-sep.
26-sep.
28-sep.
30-sep.
Risk premium Spain-Italy SEP. 2015

28. SMEs loans
28
Funding conditions are impoving for Spanish SMEs
Financial costs in Spain continue above those in the Eurozone
2,5
3,0
3,5
4,0
4,5
5,0
5,5
6,0
6,5
7,0
Bank interestrates - new loans to SMEs *
(%)
Eurozone Spain
* Loans of up to EUR 1M
Source: La Caixa Research based on ECB, 2015

29. 0
200.000
400.000
600.000
800.000
1.000.000
1.200.000
1.400.000
mar.-08
jul.-08
nov.-08
mar.-09
jul.-09
nov.-09
mar.-10
jul.-10
nov.-10
mar.-11
jul.-11
nov.-11
mar.-12
jul.-12
nov.-12
mar.-13
jul.-13
nov.-13
mar.-14
jul.-14
nov.-14
mar.-15
jul.-15
Debt: PPAAs, non-financial corporations and households
Millions of euros
Public Non-financial coroprations Households
Source:Círculo de Empresarios basedon Bank of Spain, 2015
Development of debt
29
In absolute terms:
• Increase in public debt
• Deleveraging of private sector
TOTAL
(July 2015)
246.4% of GDP
Public
94.7
Non-
financial
corporations
84.9
Households
66.8

30. Public accounts:
Regional administrations fail to carry out deficit target for 2015
30
Galicia
-0.21%
Between January and July 2015:
Total deficit = 7,900 millions of euros =
0.73% of GDP
Target 2015 = 0.7%
Regional administrations fiscal balance
% GDP
Asturias
-0.22%
Cantabria
-0.46% Basque
Country
-0.21%
La Rioja
-0.01%
Navarre
-1.39%
Aragon
-0.95%
Catalonia
-0.76%
Valencian Comunity
-1.02%
Murcia
-1.3%
Andalusia
-1.02%
Balearic Islands
0.39%
Canary Islands
-0.59%
Extremadura
-1.42%
Castile and Leon
-0.71%
Madrid
-0.75%
Castile-La Mancha
-0.63%
Source: Círculo de Empresarios based on Ministry of Finance, 2015
Deficit above the target
Deficit below the target
Superavit

31. 31
Labour market
In August, Social Security system revenues increased by
1.35% y/y (to 65,800 millions of euros).
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
Affiliates
Evolutionof affiliationtoSocial Security and registered unemployment
Persons
Affiliates Unemployed
Unemployed
Source:Círculo de Empresarios basedon Ministryof Employment and Social Security, Sep. 2015

32. 32
Spain´s position in international rankings

33. www.circulodeempresarios.org