Global and Spanish Economic Outlook 1Q13

Outlook for the Global Economy and for Spain

13 February 2013

Global and Spanish Economic Outlook

Page 2

Key themes

1

2

3

The perception regarding the prospects of the global economic scenario has

improved as a result of a relaxation of financial tensions, particularly in Europe,

and the last-minute agreement to side-step the fiscal cliff in the US.

To sustain the recovery, appropriate policies must be adopted in both the US

and the euro area.

Without ruling out upside surprises, the risks remain tilted to the downside,

although they appear less likely now and should have a smaller impact.

Spain: caution due to existing risks. In 2013, the economy should bottom out,

paving the way for economic growth in 2014.

Therefore it is vital to take advantage of the window of opportunity that has

opened up to push through reforms that shore up the improvement in

confidence.

4

5


Page 3

Section 1

Global economy:

economic outlook improves

Section 2

Spain: will recovery start in 2013?

Contents


Page 4

The ease in financial stress drives an improvement in global economic activity

BBVA financial stress indexSource: BBVA Research

BBVA-GAIN and World TradeSource: BBVA Research based on CPB data

-24,0

-18,0

-12,0

-6,0

0,0

6,0

12,0

-6,0

-5,0

-4,0

-3,0

-2,0

-1,0

0,0

1,0

2,0

3,0

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

World Trade (3m MA) GAIN (right)

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan-06

Jun-06

Nov-06

Apr-07

Sep-07

Feb-08

Jul-08

Dec-08

May-09

Oct-09

Mar-10

Aug-10

Jan-11

Jun-11

Nov-11

Apr-12

Sep-12

Feb-13

US Eurozone

The perception of the global economic scenario improves


Page 5

Global economic growth (%)Source: BBVA Research

The perception of the global economic scenario improves

Improved confidence boosts activity Improved confidence boosts activity

The most extreme risk scenarios are less likely now thanks to the response by economic policies

The most extreme risk scenarios are less likely now thanks to the response by economic policies

Progress in governance in Europe and further agreements on the US fiscal deficit are necessary

conditions for recovery

Progress in governance in Europe and further agreements on the US fiscal deficit are necessary

conditions for recovery

2,8

-0,6

5,1

3,9

3,2 3,64,1

-2

-1

0

1

2

3

4

5

6

-2

-1

0

1

2

3

4

5

6

2008 2009 2010 2011 2012 (f) 2013 (f) 2014 (f)

Developed economies Emerging economies

Baseline Feb-13 Baseline Nov-12


Page 6

Brighter prospects for emerging economies

China: GDP growthSource: BBVA Research

Improved prospects for the Chinese economy provide support to the global economy

Improved prospects for the Chinese economy provide support to the global economy

Mid term, consumption must take over as a growth driver in China

Mid term, consumption must take over as a growth driver in China

Investment, backed by stimulus measures, and exports to the rest of Asia and the US are behind

China's renewed growth

Investment, backed by stimulus measures, and exports to the rest of Asia and the US are behind

China's renewed growth

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

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

% qoq, Seasonally adjusted % yoy


Page 7

The US weathers the impact of fiscal uncertainty

US: economic policy uncertainty indexSource: BBVA Research based on data from PolicyUncertainty.com

Economic policy uncertainty has not prevented financial stress from easing…

Economic policy uncertainty has not prevented financial stress from easing…

Extraordinary monetary expansion counterbalances the potential impact of fiscal uncertainty on economic

performance

Extraordinary monetary expansion counterbalances the potential impact of fiscal uncertainty on economic

performance

…enabling private consumption to continue growing at near pre-crisis levels

…enabling private consumption to continue growing at near pre-crisis levels

-1,500

-,500

,500

1,500

2,500

50

100

150

200

250

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

Policy uncertainty (left) Financial Stress (right)


Page 8

Euro area: economic policy uncertainty indexSource: BBVA Research based on data from PolicyUncertainty.com

EMU: lower perception of risk with progress towards a banking union

1. The ECB says it is “ready to do whatever it takes” to preserve the euro

1. The ECB says it is “ready to do whatever it takes” to preserve the euro

3. EU council: decisive and continuous steps towards a banking union

3. EU council: decisive and continuous steps towards a banking union

2. Second Greek bailout: a decisive movement against euro break-up risks

2. Second Greek bailout: a decisive movement against euro break-up risks

-> capital flows back to Europe, and not only to peripheral countries; financial stress eases

-> capital flows back to Europe, and not only to peripheral countries; financial stress eases

What has happened since last summer?

-1,5

-0,5

0,5

1,5

2,5

50

100

150

200

250

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Incertidumbre de las políticas (izquierda)

Tensiones financieras (derecha)

Policy uncertainty (left)

Financial stress (right)


Page 9

Single regulator and supervisory body in 2014Single regulator and supervisory body in 2014

…without commitments to implement an European deposit guarantee fund

…without commitments to implement an European deposit guarantee fund

Single resolution mechanism and direct recapitalisation to be developed in 2013…Single resolution mechanism and direct recapitalisation to be developed in 2013…

Banking union

Since the December summit, progress towards a fiscal union has been delayed

Since the December summit, progress towards a fiscal union has been delayed

…without debt mutualisation commitments or additional budget controls

…without debt mutualisation commitments or additional budget controls

The "Treaty on Stability" and the "Six pack" appear to be sufficient for now…

The "Treaty on Stability" and the "Six pack" appear to be sufficient for now…

Fiscal union



Page 10

Despite advances, Europe's banking markets remain highly fragmented

Net balance with the Eurosystem (€ Bn)Source: BBVA Research based on Bloomberg data

BBVA composite bank fragmentation indexSource: BBVA Research

* Components: (i) coefficient of variation across countries on the interest rate of loans to businesses

and households (average) (ii) TARGET2 balance (iii) Eurosystem liquidity as a percentage of bank

assets, (iv) interquartile range of 2-year bond yields. To combine the indicators, we normalise and

estimate each based on principal components.


-1200

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

1200

-1200

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

1200

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Periphery

Core

-2

-1

0

1

2

3

4

5

6

Jan-07

Apr-07

Jul-0

7

Oct-07

Jan-08

Apr-08

Jul-0

8

Oct-08

Jan-09

Apr-09

Jul-0

9

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12


Page 11

USUS Agreements pending: automatic public spending cuts and debt ceiling

Agreements pending: automatic public spending cuts and debt ceiling

EurozoneEurozone

Risk factors to the global scenario

Other global risksOther global risks

Geopolitical pressure, especially in North Africa and the Near East

Geopolitical pressure, especially in North Africa and the Near East

Slowdown in China and other emerging economiesSlowdown in China and

other emerging economies

Achievement of budget deficit targetsAchievement of budget deficit targets

Election uncertaintiesElection uncertainties

Adoption of banking union and Cyprus bailout agreementsAdoption of banking union

and Cyprus bailout agreements


Page 12

Growth looks set to remain uneven

GDP growth (% yoy)Source: BBVA Research

There is still a high dispersion in growth ratesThere is still a high dispersion in growth rates

Euro area: brighter prospects, but recovery will be slow, uneven and vulnerable

Euro area: brighter prospects, but recovery will be slow, uneven and vulnerable

The EAGLEs have proven to be crisis-resistant, reinforcing the "new normal” paradigm

The EAGLEs have proven to be crisis-resistant, reinforcing the "new normal” paradigm

A three-speed world

3,6

4,1

1,8

2,3

0,3

1,3

5,86,1

-2

0

2

4

6

8

-2

0

2

4

6

8

2013 2014 2013 2014 2013 2014 2013 2014

World USA Eurozone Eagles

Feb-13 Nov-12


Page 13

Section 1

Global economy:

economic scenario improves

Section 2

Spain: will recovery start in 2013?

Contents


Page 14

Spain: GDP growth and MICA-BBVA forecasts (% qoq)Source: BBVA Research based on INE data

In spring, 28.6% of analysts polled expected Spanish GDP to contract more than 2.1% in 2012

(50% between 1.4% and 1.8%)

In spring, 28.6% of analysts polled expected Spanish GDP to contract more than 2.1% in 2012

(50% between 1.4% and 1.8%)

Available data point to a negative growth in 1Q13, but not as severe as in 4Q12

Available data point to a negative growth in 1Q13, but not as severe as in 4Q12

Although the pace of decline accelerated in 4Q12, the second half of 2012 beat expectations

Although the pace of decline accelerated in 4Q12, the second half of 2012 beat expectations

2012 topped forecasts in spring

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

CI at 60% CI at 40% CI at 20%

Point estimate Data


Page 15

Fiscal adjustment and economic growthSource: BBVA Research based on IMF data


Fiscal adjustment has been considerable, but GDP has not responded as expected. Potential reasons:


2. Certain measures have been construed as being temporary


1. Spending has been cut with a low multiplier at times of financial stress


3. Fiscal adjustment has come alongside compensatory measures (supplier payment plan)


DEU

ROM

GRC

CYP

DNK

CHE AUT

FINMLT

SWE

NLD

NOR

POL

BGR

CZEFRAITA

HUN

SVK

ESP

PRT

BEL

SVN

GBR

ISLIRL

-8

-6

-4

-2

0

2

4

6

8

-3 -2 -1 0 1 2 3 4 5 6

GDP growth forecast error

Forecast fiscal consolidation (% of potential GDP)

1. Lower-than-expected multiplier (I)


Page 16

CYP

DNK

CHE AUT

FINMLT

SWE

NLD

NOR

POL

BGR

CZEFRAITA

HUN

SVK

ESP

PRT

BEL

SVN

GBR

ISLIRL

-8

-6

-4

-2

0

2

4

6

8

-3 -2 -1 0 1 2 3 4 5 6

GDP growth forecast error

Forecast fiscal consolidation (% of potential GDP)

Fiscal adjustment and economic growthSource: BBVA Research based on IMF data








1. Lower-than-expected multiplier (II)




Page 17


EU: cumulative growth of exports and unit labour costs, 1Q08-3Q12 (%)Source: BBVA Research based on Eurostat data

AUS

BEL

CY

EE

EUEMU

FIN

FRA

DEUIRE

ITA

LUX

MT

NLDPRT

SK

SI

ESP

-15

-10

-5

0

5

10

15

20

25

30

-10 0 10 20

Exports growth

Unit labour costs growth

Exports show increasing diversification of destinations and products

Exports show increasing diversification of destinations and products

The rise in exports has not been accompanied by any increase in imports, unlike at other times in the pastThe rise in exports has not been accompanied by any increase in imports, unlike at other times in the past

Better price competitiveness explains part of this trend, but other determinants are more importantBetter price competitiveness explains part of this trend, but other determinants are more important

2. Higher external demand (I)


Page 18


Spain: current account and ULCs, 1Q08-3Q12Source: BBVA Research based on Eurostat data

Higher exports and lower imports have produced a sharp improvement in the external imbalance

Higher exports and lower imports have produced a sharp improvement in the external imbalance

Reinforce the feedback factor: improvement in price competitiveness and the other determinants

Reinforce the feedback factor: improvement in price competitiveness and the other determinants

Lower ULCs make Spanish products more competitive vis-à-vis imports

Lower ULCs make Spanish products more competitive vis-à-vis imports

2. Higher external demand (II)

AUS

BEL

CY

EE

EUEMU

FIN

FRA

DEU

IRE

ITA

LUX

MT

NLD

PRTSK

SI

SP

-10

-5

0

5

10

15

-10 0 10 20 30Change in the current account balance over GDP (pp)

Unit labour costs growth (%)


Page 19


Spain: real wages, employment and GDP(cumulative % change, SWDA data, %)Source: BBVA Research

Labour market reform and the 2nd Agreement on Employment and Collective Bargaining have

prevented further job destruction

Labour market reform and the 2nd Agreement on Employment and Collective Bargaining have

prevented further job destruction

…trends in real wages and other variables are consistent with a more efficient labour market…trends in real wages and other variables are consistent with a more efficient labour market

While more data are needed to identify the factors undermining employment and GDP…

While more data are needed to identify the factors undermining employment and GDP…

3. A more efficient labour market?

-6

-4

-2

0

2

4

Real rem.per

employee

LFS

employment

(swda)

GDP Real rem.per

employee

LFS

employment(swda)

GDP

4Q08-3Q09 1Q12-4Q12


Page 20

2013: the year the economy should bottom out

Spain: domestic demand, exports and imports(4Q2007=100)Source: BBVA Research based on INE data

70

85

100

115

130

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Imports

Domestic demand

Exports

Slight improvement in forecast GDP for 2013, with a 1.1% contraction, due to the knock-on effect of

2012

Slight improvement in forecast GDP for 2013, with a 1.1% contraction, due to the knock-on effect of

2012

Significant reduction in the current account deficitSignificant reduction in the current account deficit

Highly mixed performances by exports, domestic demand and imports

-> a dual economy for firms

Highly mixed performances by exports, domestic demand and imports

-> a dual economy for firms


Page 21


Regional growth forecasts for 2013 (%)Source: BBVA Research based on INE data

Growth across Spain's regions should also remain uneven

Growth across Spain's regions should also remain uneven

…although adjustment in the northern and central regions of Spain is approaching to the end

…although adjustment in the northern and central regions of Spain is approaching to the end

Differences in regional growth marked by fiscal adjustment and net trade…

Differences in regional growth marked by fiscal adjustment and net trade…

(*) The 45º line indicates the same growth in 2012 and 2013

AND

ARAAST

BAL

CANA

CANT

CYL

CLM

CAT

EXT

GAL

MAD

MUR

NAV

BASCRIO

VAL

SPA

-2,0

-1,6

-1,2

-0,8

-0,4

0,0

-2,8 -2,4 -2,0 -1,6 -1,2 -0,8 -0,4 0,0

GDP growth in 2013 (%)

GDP growth in 2012 (%)


Page 22


The unemployment rate should peak during 2013The unemployment rate should peak during 2013

Additional measures and reforms are needed to reduce unemployment faster

Additional measures and reforms are needed to reduce unemployment faster

A smaller active population and improved GDP should allow the unemployment rate to ease slightly in 2014 A smaller active population and improved GDP should allow the unemployment rate to ease slightly in 2014

Spain: unemployment rate (%)Source: BBVA Research

15

17

19

21

23

25

27

29

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

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

SWDA data Raw data


Page 23

Spain: balance of payments and capital flows (Cumulative 12-month, % of GDP) Source: BBVA Research, based on Bank of Spain data

2014: the start of recovery

A better current account balance reduces the need for external borrowing…

A better current account balance reduces the need for external borrowing…

…and improve foreign perception of the Spanish economy, driving down risk premiums

…and improve foreign perception of the Spanish economy, driving down risk premiums

…which should reduce the dependence on ECB finance…

…which should reduce the dependence on ECB finance…

1. Gradual improvement in foreign confidence in the Spanish economy

34,3

34,6

33,7

29,5

-4

-3

-2

-1

0

1

2

3

4

-40-35-30-25-20-15-10-50510152025303540

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12(e)

Dec-13(e)

Dec-14(e)

Eurosystem

Rest

FDI inflows

Current account (as a residual; includes Errors andOmissions; rhs)


Page 24

Spain and the EMU: GDP growth (% yoy) Source: BBVA Research based on Eurostat and INE data


2. Higher growth in the EMU

Brighter prospects for the EMU also bode well for Spain:

Brighter prospects for the EMU also bode well for Spain:

2. Higher external demand 2. Higher external demand

1. Higher confidence and lower financial stress1. Higher confidence and lower financial stress

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

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

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Spain EMU


Page 25


Spain: exports and investment in equipment and machinery (2008=100)Source: BBVA Research based on INE data

3. Improvement in private investment

Brighter prospects for the EMU, continued growth in exports...

Brighter prospects for the EMU, continued growth in exports...

…should feed through to a recovery in private sector investment

…should feed through to a recovery in private sector investment

...and reduced financial stress......and reduced financial stress...

60

70

80

90

100

110

120

130

140

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Goods and services exports

Equipment and machinery investment


Page 26

0

5

10

15

20

25

30

35

40

45

50

Started houses Finished houses Housing investment

(% GDP)

2013 (f) 2014 (f)


4. Smaller negative impact of ongoing adjustments (I):

The supply-side correction in construction should end in 2014

The supply-side correction in construction should end in 2014

The banking sector restructuring will be further along The banking sector restructuring will be further along

Public sector cuts should be less severe than the undertaken in 2012 and the forecast for 2013 Public sector cuts should be less severe than the undertaken in 2012 and the forecast for 2013

Spain: forecasts for the real estate sector(% versus average 2004-2007)Source: BBVA Research based on Works Ministry and INE data


Page 27

Public administrations: decomposition of the budget deficit excluding financial sector aid (% of GDP)Source: BBVA Research, based on MINHAP data


4. Smaller negative impact of ongoing adjustments (II):

Fiscal consolidation is working: budget cuts in 2012 will surpass 4pp of GDP

Fiscal consolidation is working: budget cuts in 2012 will surpass 4pp of GDP

Overall, there are still major reforms to be undertaken, that would increase the efficiency of the

public administrations

Overall, there are still major reforms to be undertaken, that would increase the efficiency of the

public administrations

2014 will not require as great an effort as in 2013 and 2012

2014 will not require as great an effort as in 2013 and 2012

9.0

2.6

4.3

7.2

2.03.3

5.9

-0.2 1.1

4.6

0

2

4

6

8

10

12

14

Pasivefiscalpolicy

Fiscaleffort

Deficit2012

Pasivefiscalpolicy

Fiscaleffort

Deficit2013

Pasivefiscalpolicy

Fiscaleffort

Deficit2014

Deficit2011

2012 2013 2014


Page 28

Spain: Private sector credit (€Bn, trend)Source: BBVA Research, based on Bank of Spain data


4. Smaller negative impact of ongoing adjustments (III):

Assessment of the MoU: bank restructuring is well underway

Assessment of the MoU: bank restructuring is well underway

Areas for improvement: (1) lending to SMEs(2) increased data on credit flows

Areas for improvement: (1) lending to SMEs(2) increased data on credit flows

Deleveraging and economic recovery: credit for productive investment and job creation

Deleveraging and economic recovery: credit for productive investment and job creation

100

150

200

250

300

350

Mar-03

Sep-03

Mar-04

Sep-04

Mar-05

Sep-05

Mar-06

Sep-06

Mar-07

Sep-07

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Mar-11

Sep-11

Mar-12

Sep-12

New loans Loan repayment


Page 29

A window of opportunity that must be seized

The baseline scenario is highly sensitive to finance conditions in international markets, while numerous risks persist

The baseline scenario is highly sensitive to finance 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 funds to spearhead growth are

crucial.

Europe should progress towards a more genuine EMU. For this, progress towards the banking union in 2013 and funds to spearhead growth are

crucial.

Efforts to achieve permanent improvement of markets and take advantage of it, unlike in the past

Efforts to achieve permanent improvement of markets and take advantage of it, unlike in the past

Spain must extreme efforts with the ongoing adjustments and structural reforms required to boost the competitiveness of its economy

Spain must extreme efforts with the ongoing adjustments and structural reforms required to boost the competitiveness of its economy


Page 30

Key themes

1

2

3

The perception regarding the prospects of the global economic scenario has

improved as a result of a relaxation of financial tensions, particularly in Europe,

and the last-minute agreement to side-step the fiscal cliff in the US.

To sustain the recovery, appropriate policies must be adopted in both the US

and the euro area.

Without ruling upside surprises, the risk of global uncertainty remains tiled to

the downside, although the risks appear less likely now and with a smaller

impact.

Spain: caution due to existing risks. In 2013, the economy should bottom out,

paving the way to begin growing again in 2014.

Therefore it is vital to take advantage or the window of opportunity that has

opened up to push through reforms that shore up the improvement in

confidence.

4

5

Outlook for the Global Economy and for Spain

13 February 2013

Date post:	08-May-2015
Category:	Economy & Finance
Upload:	bbva-research
View:	188 times
Download:	4 times

Global and Spanish Economic Outlook 1Q13

Economy & Finance