the global economic outlook and the spanish economy
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The Global Economic Outlook and the Spanish Economy
Rafael Doménech IADS FINANCIAL DIRECTORS MEETING Madrid, October, 3 and 4, 2013
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
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
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
Global Economic Oulook – October 2013
… with signi!icant 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
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
LehmanBrothers
1st bail outof Greece
Risk of Euro break up
Sovereign & bankingcontagion in the EZ
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
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
Serie9 Serie3 Serie4 MICA-BBVA GDP observed CI 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%
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
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-0
9
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 FranceSpain Italy
… and financial fragmentation is still high
Page 9
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-1
2
Sep-12
Nov-12
Jan-13
Mar-13
May
-13
Jul-1
3
Sep-13
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-s
ep-1
0
22
-dic
-10
13
-abr-
11
3-a
go-1
1
23
-nov-
11
14
-mar
-12
4-ju
l-12
24
-oct
-12
13
-feb
-13
5-ju
n-1
3
25
-sep
-13
Emerging Markets, left axis Developed Markets, right axis
Page 11
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
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 3.13.8
2.8
1.82.3
-0.5 -0.4
1
5.15.2
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
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
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
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
CI at 20%
CI at 40%
CI at 60%
Data (MICA-BBVA Nowcast for 3Q13)
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 .
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%
IrelandNorwayFinlandSwedenBelgium
DenmarkItaly
FranceAustria
European UnionEuro area
NetherlandsUnited Kingdom
GermanySwitzerland
PortugalSpain
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
SI SK
FI
SE UK
NO
-6
-4
-2
0
2
4
6
8
10
12
14
16
-15 -10 -5 0 5 10 15 20
Cu
rren
t A
cco
un
t (c
han
ge in
pp
)
Unit labor Costs (% change)
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
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
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
2.64.6
7.0
1.7 2.2
6.5
-0,1 0.6
5.8
0
2
4
6
8
10
12
14
Def
icit
Pas
sive
fis
cal polic
y
Fis
cal ef
fort
Def
icit 2
012
Pass
ive
fisca
l pol
icy
Fis
cal e
ffor
t
Def
icit
201
3
Pass
ive
fisca
l pol
icy
Fis
cal e
ffor
t
Def
icit
201
4
2011 2012 2013 2014
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
ju
n-0
8
sep-0
8
dic
-08
mar
-09
ju
n-0
9
sep-0
9
dic
-09
mar
-10
ju
n-1
0
sep-1
0
dic
-10
mar
-11
ju
n-1
1
sep-1
1
dic
-11
mar
-12
ju
n-1
2
sep-1
2
dic
-12
mar
-13
ju
n-1
3
sep-1
3 (
e)
Employment f.t.e Labor productivity GDP
Page 22
The labour market is stabilising
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 thewage moderation
Jobs that would besaved if the processhad begun in 2008
Page 23
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
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
Rafael Doménech IADS FINANCIAL DIRECTORS MEETING Madrid, October, 3 and 4, 2013
The Global Economic Outlook and the Spanish Economy
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