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European and Spanish Economic Outlook
Rafael Doménech London, March 31, 2014
European and Spanish Economic Outlook, March 2014
Main messages
Página 2
1
2
3
The global economic cycle is improving and we expect a moderate acceleration in growth in 2014-15 supported by the developed economies
Some economic policy uncertainties have been resolved but there are still risks, although not of a systemic nature, as it was the case in the past
For the first time since the beginning of the crisis the risks to our forecasts for the Spanish economy are to the upside. The recovery is being driven by exports, import substitution and the recovery in new lending. In addition, both financial tensions and fiscal consolidation are less intense
The scope of the reforms needs to be expanded if they are to underpin a robust and sustained recovery, and reverse the jobs destroyed within a reasonable period
4
European and Spanish Economic Outlook, March 2014
Index
Página 3
Section 1
Global economy: a gradual acceleration supported by developed economies Section 2
Spain: upside risks for the first time since the beginning of the crisis
Section 3
Commitment to the reforms is crucial to consolidate recent market improvement and increase potential growth
European and Spanish Economic Outlook, March 2014
Global growth will increase in 2014 an 2015
Page 4
Global GDP growth (%) Source: BBVA Research 1
2
The global expansion will continue in 2014-15 this time around with higher contributions from advanced economies
Growth risks are more balanced with upward risks in the US and downward risks that remain: • the exit from QE and flows to
emerging markets,
• the uneven recoveries and vulnerabilities in EMs, and
• the Eurozone
3.92.8
-0.4
5.24.0
3.22.9
3.6
-3
-2
-1
0
1
2
3
4
5
6
2008 2009 2010 2011 2012 2013
(e)
2014
(f)
2015
(f)Adv. Economies Emerging economies
Baseline Jan14 Baseline Oct-13
European and Spanish Economic Outlook, March 2014
The global momentum is improving
Manufacturing PMIs Source: BBVA Research based on Markit Economics
BBVA Financial Stress Index Source: BBVA Research
46
48
50
52
54
56
58
60
Oct
10
Mar
11
Aug
11
Jan
12
Jun
12
Nov
12
Apr
13
Sep
13
Feb
14
GlobalAdvanced economiesBBVA EaglesHSBC Emerging Markets Index
-0.12
-0.08
-0.04
0.00
0.04
Mar
-12
Jul-1
2
Nov
-12
Mar
-13
Jul-1
3
Nov
-13
Mar
-14
-0.50
-0.10
0.30
0.70
1.10
Emerging Markets, left axis
Developed Markets, right axis
Página 5
European and Spanish Economic Outlook, March 2014
The eurozone: positive growth with an increasing role of domestic demand
Exports will remain as the main driver of growth in both 2013 and 2014
Domestic demand has weighed on growth in 2013, but will contribute to the recovery in
2014-15
Overall: lower financial tensions, higher global growth, lower fiscal drag, ECB’s loosening bias
and Banking Union
Page 6
Eurozone: GDP growth (y/y) Source: BBVA Research
-0.6
1.1
-0.4
1.9
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2012 2013 2014 2015
Baseline Jan-2014 Baseline Oct-2013
European and Spanish Economic Outlook, March 2014
1) The external environment remains positive
Drivers of (still slow) growth in the eurozone
3) The fiscal stance is less restrictive
2) Financial conditions have improved, especially in the periphery
4) The banking union is advancing, with bank exams and single supervision in 2014
Página 7
European and Spanish Economic Outlook, March 2014
Growth at diverse paces and with different risks …
Growth cycle strengthens, mainly in advanced economies and in some emerging
economies. Economic policy remains as a supportive factor for growth in 2014-15
To reinforce the baseline scenario, policy-makers have to tackle domestic
vulnerabilities: banking issues and disinflation risks in the Eurozone, financial vulnerabilities in
China, and private domestic demand in emerging economies
The impact of FED’s tapering over global funding conditions, in the US and beyond,
remains as a factor of uncertainty
Page 8
GDP growth (%yoy) Source: BBVA Research and IMF
3.22.9
3.63.9
2.8
1.8
2.5 2.5
-0.6-0.4
1.11.9
5.0 4.85.2 5.4
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2012
2013
2014
2015
2012
2013
2014
2015
2012
2013
2014
2015
2012
2013
2014
2015
World US EMU BBVA-EAGLES
Baseline Nov-13
European and Spanish Economic Outlook, March 2014
… with a widespread recovery across EMU countries …
GDP growth by country (%) Source: BBVA Research
-0,4
1,1
1,9
0,5
1,8 2,0
0,2
1,1
1,6
-1,8
0,8
1,5
-1,2
0,9
1,9
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
20
13
20
14
20
15
20
13
20
14
20
15
20
13
20
14
20
15
20
13
20
14
20
15
20
13
20
14
20
15
EMU Germany France Italy Spain
Current Forecast (February 14)
Previous Forecast (November 13)
Germany: slight upward revision. Mild recovery on track supported by domestic fundamentals
France: GDP virtually flat in 2013 while the moderate recovery for 2014 will depend on
the economic policy implementation
Italy: though activity stabilised in 2H13, sharp downward in 2013, Slight growth in 2014, but
downside risks increase
Página 9
European and Spanish Economic Outlook, March 2014
… but with some important uncertainties for 2014
World: (1) risk of a sudden slowdown in emerging countries and its ability to rebalance its growth path (e.g., China), (2) effects on capital flows and financial
conditions from Fed exit strategy, and (3) geopolitical
U.S.: (1) risks in Fed exit strategy, (2) debt ceiling and fiscal consolidation in the long run, and (3) growth potential and doubts on secular stagnation
EMU: (1) persistence of sovereign risk and financial fragmentation, (2) process to the Banking Union Bank (AQR and stress tests), (3) risk of deflation and the
burden of a very low inflation, and (4) Greece and Portugal programmes
Spain: political environment, scope of structural reforms, potential growth, recovery with a very low inflation in EMU, fiscal consolidation and banking
restructuring process
Página 10
European and Spanish Economic Outlook, March 2014
Asymmetric shocks and an incomplete union in EMU
Shocks Symmetric Asymmetric
Complete union USA Incomplete union EMU
Differences in the asymmetry of shocks and institutions have resulted in very different response of economic policies during the crisis, …
… which now are affecting the effectiveness of the ECB to ensure its inflation target and to anchor inflation expectations
Página 11
European and Spanish Economic Outlook, March 2014
Asymmetric shocks and an incomplete union in EMU
GDP per working age population 2Q08=100 Source: Eurostat and BBVA Research
Página 12
As a result of the imbalances accumulated before and during the crisis, and the lack of
banking, fiscal and economic union …
… EMU countries exhibit large differences in unemployment rates and in GDP per working-
age population, …
… which are correlated with creditor and debtor positions of each country -> consensus on
European economic policy is difficult 90
92
94
96
98
100
102
104
106
108
1Q0
8 2Q
08
3Q0
8 4Q
08
1Q0
9 2Q
09
3Q0
9 4Q
09
1Q10
2Q
10
3Q10
4Q
10
1Q11
2Q
11
3Q11
4Q
11
1Q12
2Q
12
3Q12
4Q
12
1Q13
2Q
13
3Q13
4Q
13
1Q14
2Q
14
3Q14
4Q
14
EMU Germany France Italy
Spain Portugal USA
European and Spanish Economic Outlook, March 2014
1. Financial uncertainties Banking union: key to reduce financial fragmentation
• ECB as the ultimately responsible regulatory authority for all eurozone banks
• Direct supervisor of top 130 banks
• National authorities will supervise the less significant entities
• Start: 04/11/2014
• Prudential (Basel III), resolution framework (bail-in), harmonised deposit protection rules
• Start: 2014 - 2016
• Start: unknown
• New Single Resolution
Authority in co-operation with national resolution authorities
• Single Resolution Fund funded by bank contributions
• Start: 2015 - 2016
Common Rules
Single Supervision
Single Resolution
Single Depo Guarantee Scheme
Pillar I
Pillar II Pillar III
Pillar IV Setting up a robust supranational framework
Página 13
European and Spanish Economic Outlook, March 2014
Eurozone: interest rates of government bonds and new loans to non-financial firms, 2013 Source: BBVA Research based on ECB
Página 14
Despite the significant fall of financial tensions, financial fragmentation is still important …
Real interest rates in EMU countries with high unemployment rate much larger than in countries with
low unemployment rate
… particularly in countries where inflation is low -> differences in real interest rates larger than in
nominal ones
… interest rates of government bonds and new loans to non-financial firms highly correlated: sovereign and
banking risks spillovers still remarkable …
1. Financial uncertainties
Banking union: key to reduce financial fragmentation
AT
BE DE
ES
FI
FR
IE IT
NL
PT
SI
SK
y = 0,96x + 1,75 R² = 0,96
1
1,5
2
2,5
3
3,5
4
4,5
5
5,5
6
0 1 2 3 4
Inte
rest
rate
s on
new
bus
ines
s lo
ans
up to
1y
, 2H
2013
Government bond rates (1 to 3y), 1H2013
European and Spanish Economic Outlook, March 2014
2. The costs and risks of a low inflation recovery Trend inflation & expectations well below the ECB target
Eurozone: unemployment rate and inflation Source: Eurostat and BBVA Research
Página 15
The double-dip recession (unemployment) and M3 growth partially explain the low rate of inflation in EMU
Although the probability of deflation is low (<10%) the combination of adverse shocks and expectations downward significantly increase this probability
Inflation expectations in swaps and trimmed mean inflation (optimal selection in terms of inflation
prediction for next 2/3 years) are about 1%
If 3 pp of higher unemployment explain 0.4 pp lower inflation, inflation expectations are currently less than
1.2% -> drag for the economic recovery
The regression coefficient of the inflation rate on the unemployment rate is equal to 0.125, statistically significant and robust to the exclusion of Cyprus, Greece and Spain.
DE
LU
FI
EE
BE
SL MT
EMU (Feb) NL FR IT
LT
IE PT
SK ES
EL CY
EMU (EQ)
Inflation expectations:
1.2%
EMU (Mar)
-2
-1,5
-1
-0,5
0
0,5
1
1,5
2
5 10 15 20 25 30
Infla
tion
rate
, Feb
. 201
4, y
/y (%
)
Unemployment rate, Jan. 2014 (%)
0,5/4
European and Spanish Economic Outlook, March 2014
2. The costs and risks of a low inflation recovery
Trend inflation & expectations well below the ECB target
Spain: trending inflation (trimmed mean inflation, % y/y) Source BBVA Research based on INE
Eurozone: trending inflation (trimmed mean inflation, % y/y) Source BBVA Research based on Eurostat
-2
-1
0
1
2
3
4
5
6
feb-0
4
ago-0
4
feb-0
5
ago-0
5
feb-0
6
ago-0
6
feb-0
7
ago-0
7
feb-0
8
ago-0
8
feb-0
9
ago-0
9
feb-1
0
ago-1
0
feb-1
1
ago-1
1
feb-1
2
ago-1
2
feb-1
3
ago-1
3
feb-1
4
90CI 80CI 60CI
40CI 20CI Optimum trim
Headline (official) Core (official)
-2
-1
0
1
2
3
4
5
6
feb-0
4
ago-0
4
feb-0
5
ago-0
5
feb-0
6
ago-0
6
feb-0
7
ago-0
7
feb-0
8
ago-0
8
feb-0
9
ago-0
9
feb-1
0
ago-1
0
feb-1
1
ago-1
1
feb-1
2
ago-1
2
feb-1
3
ago-1
3
feb-1
4
90CI 80CI 60CI
40CI 20CI Optimum trim
Headline (official) Core (official)
Página 16
European and Spanish Economic Outlook, March 2014
2. The costs and risks of a low inflation recovery
ECB: ready for further action?
Will the ECB change its mind
towards QE?
• Rates were kept unchanged. They retain a downward bias
• Mr. Draghi once again used verbal intervention to strengthen his forward guidance
• Inflation significantly below 2% for a long period of time (1.5% for 2016)
• Mr. Draghi seemed to downplay the potential role of other instruments available for eventual further policy action
Latest What do we expect? Policy pause until 2016
Once it has become clear that the ECB is ready to accept inflation of 1.5% in 2016 without taking further action, the expectation of further (decisive) measures in the short-term in the absence of sizeable shocks is very low Any and all liquidity measures remain on the table (SMP non-sterilisation) in the event of an unwarranted tightening in money markets
Do not expect a weakening of the euro in the very short run
Página 17
European and Spanish Economic Outlook, March 2014
3. The risks of a sudden stop in emerging economies
EMU fragile recovery may be affected by external factors
EMU: historical decomposition of GDP per wap (%, y/y) Source: BBVA Research
Página 18
The first part of the double-dip crisis in EMU was driven by financial tensions and the
collapse of external trade
Although of a milder magnitude, a sudden stop in emerging countries could have significant
effects on EMU recovery
Similarly, Fed exit strategy may affect financial conditions in EMU
European and Spanish Economic Outlook, March 2014
Index
Página 19
Section 1
Global economy: a gradual acceleration supported by the developed economies Section 2
Spain: upside risks for the first time since the beginning of the crisis Section 3
Commitment to the reforms is crucial to consolidate the improvement in the markets and increase potential growth
European and Spanish Economic Outlook, March 2014
The recovery of the Spanish economy is confirmed …
Spain: GDP growth and MICA-BBVA forecasts (% QoQ) Source: BBVA Research based on INE
Página 20
After three years in recession, domestic demand started to make a positive contribution
to growth again in the second half of 2013…
… as a consequence of improved fundamentals, less restrictive fiscal policy, reduced
uncertainty and increased import substitution
The available information points to growth of at least 0.4% in 1Q14
-1.5
-1.0
-0.5
0.0
0.5
1.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
2Q09
3Q
09
4Q09
1Q10
2Q10
3Q
10
4Q10
1Q11
2Q11
3Q
11
4Q11
1Q12
2Q12
3Q
12
4Q12
1Q13
2Q13
3Q
13
4Q13
1Q
14
(f)
CI at 60%CI at 40%CI at 20%Data (f: MICA-BBVA Research forecast)
European and Spanish Economic Outlook, March 2014
… the risks are to the upside for the first time
Página 21
Spain: GDP growth forecasts, 2014 (% YoY) Source: BBVA Research based on Consensus Forecast Inc.
Economic policy decisions have eliminated the risk scenarios
The differential performance of the Spanish economy confirms this improvement in the
trend
If these trends are confirmed, growth could be even stronger than we are forecasting
0
10
20
30
40
50
60
(< -0,25) (-0,25;0) (0;0,25) (0,25;0,5)(0,5;0,75) (0,75;1) (1;1,25) (1,25;1,5) (>1,5)
Rel
ativ
e fr
equen
cy
GDP Growth forecast
March-2014 (mean: 0,9%)December-2013 (mean: 0,6%)March-2013 (mean:0,3%)
BBVA ResearchFEB-2014
European and Spanish Economic Outlook, March 2014
Upside risks: 1. Exports will continue to expand
Página 22
Spain: growth and breakdown of goods exports by broad geographical area Source: BBVA Research based on Datacomex
We expect the recovery to continue driven by the increase in exports
The deceleration in exports is a temporary phenomenon and will reverse in a scenario of
stronger global growth
The slowing momentum in EMs has been offset by the recovery in the EMU 0
10
20
30
40
50
60
-24
-18
-12
-6
0
6
12
EMU EAGLEs
Nominal growth, 1Q13 average % YoY (LHS)
Nominal growth, 4Q13 average % YoY (LHS)
Share over total exports in 2013 (%, RHS)
European and Spanish Economic Outlook, March 2014
Upside risks 2. An increase in savings and financial wealth
Página 23
Spain: net real household financial wealth (Deflated by the private consumption deflator; seasonally adjusted data) Source: BBVA Research based on Bank of Spain and INE
The increase in corporate and household savings has been an essential part of the
recoveries in Spain …
… that has helped in the deleveraging process and in the improvement in the financial
situation of the private sector …
… and these, together with the stabilisation and improvement in the value of wealth, has
driven an increase in consumption and investment
600
700
800
900
1000
Mar
-08
Jun-
08
Sep
-08
Dec
-08
Mar
-09
Jun-
09
Sep
-09
Dec
-09
Mar
-10
Jun-
10
Sep
-10
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun-
13
Sep
-13
Real net financial wealth (billion €)
2Q12-3Q13: +24.8%
European and Spanish Economic Outlook, March 2014
Spain: 10Y bond yield (Difference vs. our November 2013 forecast in bp) Source: BBVA Research
Upside risks 3. More certainty and fewer financial tensions
Página 24
-128
-126
-124
-122
-120
-118
-116
-114
-112
-110
-108
2014 2015
Improved international perceptions of the Spanish economy have allowed Spain to reduce
its dependence on ECB funding
Reduced financial tensions are reflected in the economy with a lag of 6-9 months
A permanent 100bp drop in sovereign interest rates implies up to one percentage point more
growth for the economy
European and Spanish Economic Outlook, March 2014
Upside risks 4. More dynamic investment
Página 25
Spain: exports and investment in equipment and machinery (2008=100) Source: BBVA Research based on INE
The recovery we expect in the EMU and the continuing export growth …
… should translate into an increase in private-sector investment
In fact, the investment in equipment and machinery had grown 6.3% by 4Q13
60
70
80
90
100
110
120
130
140
Dec
-99
Sep
-00
Jun-
01
Mar
-02
Dec
-02
Sep
-03
Jun-
04
Mar
-05
Dec
-05
Sep
-06
Jun-
07
Mar
-08
Dec
-08
Sep
-09
Jun-
10
Mar
-11
Dec
-11
Sep
-12
Jun-
13
Mar
-14
Dec
-14
Sep
-15
Goods and services exports
Investment in equipment and machinery
Goods and services exports
European and Spanish Economic Outlook, March 2014
Upside risks 5. Improvement in new lending flows
Página 26
Spain: new lending and credit to households, NPISH and non-financial entities Source: BBVA Research based on Bank of Spain (February 2014)
The Spanish economy is going through an evitable deleveraging process …
… that is compatible with new lending for financially viable projects
There has been a turning point and an improvement in corporate lending, which we
expect to consolidate in 1H14
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
Jan-
13
Jan-
14
Yoy
% c
hang
e
Total Trend Corrected trend
European and Spanish Economic Outlook, March 2014
Public sector: breakdown of the public deficit excluding aid to the financial sector (% GDP) Source: BBVA Research based on MINHAP
Upside risks 6. A smaller fiscal effort needed in 2014
Página 27
The significant fiscal consolidation efforts in 2012 and 2013 …
… have resulted in containment of the public deficit at 6.6% of GDP …
… therefore allowing for a smaller fiscal effort needed in 2014
(e) advance; (f) forecast
9,1
3,05,2
6,8
1,8 2,0
6,6
0,3 0,5
5,8
0,70,0
5,1
0
2
4
6
8
10
12
14
Def
icit
20
11
Pas
sive
fis
cal p
olic
y
Fis
cal e
ffort
Def
icit 2
01
2
Pas
sive
fis
cal p
olic
y
Fis
cal e
ffort
Def
icit 2
01
3
Pas
sive
fis
cal p
olic
y
Fis
cal e
ffort
Def
icit 2
01
4
Pas
sive
fis
cal p
olic
y
Fis
cal e
ffort
Def
icit 2
01
5
2012 2013 (a ) 2014 (f) 2015 (f)
European and Spanish Economic Outlook, March 2014
Spain: LFS employment (Variation in annual average, %) Source: BBVA Research based on INE
Upside risks 7. Changes in the labour market
Página 28
Net job-creation has started sooner than we expected, partly as a reflection of wage
moderation
Had labour institutions been better at the beginning of the crisis, millions of job losses
could have been avoided
Employment growth in 2014. Additionally the fixed social security contribution for permanent
contracts can boost employment
-3.1
0.0
1.1
-3.1
0.4
1.0
-3,5
-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2013 2014 2015
Spain Outlook 4Q13 Spain Outlook 1Q14
European and Spanish Economic Outlook, March 2014
Index
Página 29
Section 1 Global economy: a gradual acceleration supported by the developed economies Section 2
Spain: upside risks for the first time since the beginning of the crisis
Section 3
Spain: commitment to the reforms is crucial to consolidate the improvement in the markets and increase potential growth
European and Spanish Economic Outlook, March 2014
The need to broaden the scope of the reform agenda
GDP growth and job-creation Source: BBVA Research and Lebergott (1964)
Assumptions for the USA and the EMU are consistent with BBVA Research´s scenario. The Spanish scenario has been built assuming both that producvity per worker rises 0,6% (as it was the case between 1992 and 2007) and that GDP grows on average 2,5.
Página 30
The recovery in employment will be very sensitive to economic growth
The objective should be to introduce the necessary reforms to increase economic
growth to close to or more than 2.5%
Unless this happens, job-creation will be limited and the recovery slow
80#
85#
90#
95#
100#
105#
Peak# 2# 4# 6# 8# 10# 12# 14# 16# 18#years#
#Employmen
t#level#at#the
#begining#the#crisis#=
100# Spain,#2007B2025#EMU,#2007B2017#USA,#2007B2014#
USA,#1929B1940#
European and Spanish Economic Outlook, March 2014
Spain: unemployment and public deficit Source: BBVA Research based on INE and MINHAP
An efficient tax system and fiscal sustainability
Página 31
Tax revenues dropped sharply in Spain as a consequence of the recession …
… and the fiscal consolidation process requires sufficient resources to ensure that Spain’s
finances remain in good health…
… but with a structure that drives economic growth and job-creation, two key factors for
reducing the deficit
80
81
82 83
84
85 86
87 88 89
90 91 92
93 94
95
96
97 98
99 00 01 02 03 04
05 06 07
08
09
10 11
12 13
-12
-10
-8
-6
-4
-2
0
2
4
7 9 11 13 15 17 19 21 23 25 27
Publ
ic b
udge
t bla
nce
(% G
DP)
Unemployment rate (%)
14% (2006)
18% (2013)
-1.5%
European and Spanish Economic Outlook, March 2014
The need to broaden the scope of the reform agenda
Página 32
1. To continue the deleveraging and improvement in the finances of the Spanish economy: finalising the restructuring of the financial sector and
attracting foreign direct investment
3. Reforms to improve competitiveness further (internal devaluation), increase the international attraction of Spain in terms of physical, human and
technological capital
4. To continue with the reforms that reduce the duality in the labour market, improve the way it functions and increase employability
-> more and better-quality jobs
2. Public-sector reform, fiscal consolidation and long-term sustainability of public finances, with an efficient tax system that create incentives to growth
and job-creation -> Report of the Experts Committee
European and Spanish Economic Outlook
Rafael Doménech London, March 31, 2014
European and Spanish Economic Outlook, March 2014
Macroeconomic scenario
Página 34
S pain EMU S pain EMU S pain EMU S pain EMUHouseholds final consumption expenditure -‐2,8 -‐1,4 -‐2,5 -‐0,5 0,9 0,7 1,3 1,2General government final consumption exp. -‐4,8 -‐0,5 -‐1,2 0,3 -‐1,1 0,5 1,3 0,7Gros s fixed capital formation (G.F .C .F .) -‐7,0 -‐3,9 -‐5,9 -‐3,1 0,2 1,6 5,2 5,0
E quipment and cultivated as s ets -‐3,9 -‐4,4 0,8 -‐2,5 6,0 2,8 7,8 7,1E quipment and machinery -‐3,9 -‐4,4 0,7 -‐2,5 5,8 2,9 7,8 7,1Hous ing -‐8,7 -‐3,4 -‐8,4 -‐3,0 -‐3,4 1,0 5,0 3,6O ther cons tructions -‐10,6 -‐4,8 -‐11,8 -‐4,9 -‐4,2 -‐0,7 1,5 2,9
C hanges in inventories (*) 0,0 -‐0,5 0,0 -‐0,1 0,0 0,0 0,0 0,0Domes tic Demand (*) -‐4,1 -‐2,1 -‐2,8 -‐0,9 0,4 0,8 2,0 1,7E xports 2,1 2,7 5,2 1,2 6,5 3,5 6,7 4,9Imports -‐5,7 -‐0,8 0,3 0,2 5,2 3,3 7,4 5,1E xternal Demand (*) 2,5 1,5 1,6 0,5 0,6 0,3 -‐0,1 0,2
GDP mp -‐1,6 -‐0,6 -‐1,2 -‐0,4 0,9 1,1 1,9 1,9Pro-‐memoria
GDP exc luding hous ing -‐1,2 -‐0,5 -‐0,8 -‐0,2 1,2 1,1 1,8 1,8GDP exc luding contruction -‐0,4 -‐0,2 -‐0,1 0,0 1,5 1,2 1,8 1,7Total employment (LF S ) -‐4,5 -‐0,7 -‐3,1 -‐0,8 0,4 0,1 1,0 0,7Unemployment rate (% Active pop.) 25,0 11,4 26,4 12,1 25,6 12,0 24,8 11,6C urrent account balance (% GDP ) -‐1,1 1,2 0,9 2,1 1,6 2,1 1,7 2,0Public debt (% GDP ) (**) 86,0 93,0 94,7 95,6 99,1 96,1 101,4 95,7Public defic it (% GDP ) -‐6,8 -‐3,7 -‐7,0 -‐2,8 -‐5,8 -‐2,4 -‐5,1 -‐2,1C P I (average) 2,4 2,5 1,4 1,4 0,5 1,0 1,0 1,4C P I (end of period) 2,9 2,2 0,3 0,8 0,7 1,3 1,2 1,5(*) C ontribution to GDP Growth
(f): forecas t
2013 (f) 2014 (f) 2015 (f)
(**) E xcluding a id to the banking s ector in S pain
2012(% YoY)
European and Spanish Economic Outlook, March 2014
Changes in the corporate insolvency law will facilitate corporate debt restructuring
New RDL on corporate debt restructuring Source: BBVA Research based on BOE
Measures
ü Possibility of individual debt refinancing agreements
ü Simplified procedures for collective debt refinancing agreements
ü Reduction in the level of required majorities to impose refinancing agreements on dissident creditors
ü BoS needs to develop new provisioning framework for refinanced loans
ü In case of insolvency, fresh money with privileged status and old debt non-subordinated
ü Takeover exemption when creditors convert into equity
ü Other measures: including fiscal benefits…
New measures announced last week remove obstacles to agreements between financial creditors and debtors
Spanish Financial System
• Increases legal certainty
• If restructuring ends in insolvency, financial creditors are not in a worse position
• Foreseeable better provisioning framework
• Conversion of debt into equity raises new issues (management, capital consumption..)
Corporates
• Deleveraging of worst quality loans
• Adjustment of debt to companies’ financial capacity
• New funding for viable business plans
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