Presentation "Europe Outlook. First Quarter 2015"

February 2015

Europe Outlook

Europe Outlook, February 2015

Section 1

Moderate global growth with increasing divergences ahead

Section 2

Eurozone drivers: oil and euro depreciation offset the downside risks

Section 3

Forecast: more solid growth expected for 2015

Section 4

The challenges continue: low potential, large imbalances

Annex

Country breakdown

Index

Page 2


World economy: where are we heading to?

Página 3

What happened as of late?

Financial tensions increase but with a significant heterogeneity

Growing concern about the economic impact of geopolitical events (Russia, Middle East)

GDP has grown faster than in the first half of 2014, but with major differences between countries

Politics into the spotlight in 2015, especially in Europe

Stronger global growth driven by oil, but with large differences by area

Divergence in monetary policies: relaxation in Europe, China and Japan, and gradual tightening in the US

What do we expect in 2015-16?

Low inflation is generalized, driven by falling oil prices

Change in oil price is a big positive shock

Lower inflation in all areas, reaching too low levels in some areas

Markets differ depending on the exposure to global shocks and the fundamentals of each country


EAGLES:

China India Indonesia Russia Brazil Turkey Mexico

USA

Mexico

Brazil

Spain

Eurozone

EAGLES China

Emerging Asia LatAm 7 LatAm 7:

Argentina Brazil Chile Colombia Mexico Peru

2016

2.8 2.2

2.7

5.2 6.6

6.0

1.8

3.4

2.4

2015

2.9 1.3 5.0 7.0

6.2 1.5

3.5

0.6

2.7

Source: BBVA Research

Global

3.6 3.8

Emerging

Asia:

China Hong Kong India Indonesia S. Korea Malaysia Philippines Singapore Taiwan Thailand Vietnam

World growth: moderate and uneven acceleration


US: higher growth and lower inflation due to the oil price fall, with little domestic risk

Page 5

US: GDP growth (YoY) Source: BBVA Research, BEA

2.2

2.4

2.92.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2013 2014 2015 2016

Jan-15 Oct-14

US: Fed Funds (%) Source: BBVA Research

Timeline of exit

strategy

3Q15

First FFR Hike

1H16

Policy Normalisation Let securities mature/sales

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

Jan-1

5

Apr-

15

Jul-1

5

Oct-

15

Jan-1

6

Apr-

16

Jul-1

6

Oct-

16

07 Oct. Before Oct Minutes 18 Dec. After Dec Minutes

Latest BBVA forecast

(Bias to the

upside)


EMs Response to the

Fed’s rate hikes

Source: BBVA Research

China Hard landing

Europe • Stagnation

• Lack of

consensus on

reforms

• Greece

• Russia-Ukraine

Global Destabilisation of

some countries as

a result of low oil

prices

Risks are still tilted to the downside

Developed

countries Indebtedness


Section 1

Moderate global growth with increasing divergences ahead Section 2

Eurozone drivers: oil and ECB offset the downside risks Section 3

Forecast: more solid growth expected for 2015 Section 4

The challenges continue: low potential, large imbalances Annex

Country breakdown

Index

Page 7


1) Oil price shock is positive as it is mostly supply-driven

Page 8

3) Exchange rate: Euro depreciation will boost exports

4) Juncker’s Plan: sizeable impact if well implemented

2) Monetary policy: large and open-ended QE programme

5) Neutral fiscal policy

6) External environment: Slowdown in Russia and China

What’s new in Europe?


0.2-0.4%

The reduction in the cost of crude will boost eurozone GDP growth in 2015 and 2016

Oil price (Brent, USD/b) Source: BBVA Research

More than 30%

in 2015-16

50

60

70

80

90

100

110

120

130

Ma

r-1

0

Au

g-1

0

Ja

n-1

1

Ju

n-1

1

No

v-1

1

Apr-

12

Se

p-1

2

Fe

b-1

3

Ju

l-1

3

De

c-1

3

Ma

y-1

4

Oct-

14

Ma

r-1

5

Au

g-1

5

Ja

n-1

6

Ju

n-1

6

No

v-1

6

Ap

r-1

7

Se

p-1

7

Fe

b-1

8

Ju

l-1

8

De

c-1

8

Actual F'cast MCOct14 F'cast December14

1) The fall in oil prices is positive for growth


2) ECB’s response to deflation risks: a wider-than-

expected QE

Página 10

Decision On January 22 the ECB finally announced an extended asset purchase programme, including public and private securities (QE)

• Maturities longer than expected: 2-30 years • Pari-passu • Purchases according to capital key • Some limits: 33% of issuer’s exposure and 25% of each issue

Format

Further details

Overall, the program could exceed €1,100 bn of public and private debt (of which around €800 bn could be sovereign bonds) and ECB´s balance sheet will reach € 3.3 bn in Dec 2016

Open-ended: monthly purchases of €60 bn of public and private debt since March 2015 until September 2016 or until inflation follows a proper path

Amount

However, risk sharing of sovereign bond purchases will be very limited (8%)


The ECB’s balance sheet will expand by at least EUR1,100 Bn

Page 11

ECB balance sheet and projections (€bn) Source BBVA Research and Bloomberg

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Jan-1

2

Jul-12

Jan-1

3

Jul-13

Jan-1

4

Jul-14

Jan-1

5

Jul-15

Jan-1

6

Jul-16

3) ECB’s QE has led to euro depreciation

Euro will be 7% more depreciated than expected in 2015

1,00

1,05

1,10

1,15

1,20

1,25

1,30

1,35

1,40

1,45

Jan-1

4

Ma

r-1

4

Ma

y-14

Jul-1

4

Sep

-14

Nov-1

4

Jan-1

5

Ma

r-1

5

Ma

y-15

Jul-1

5

Sep

-15

Nov-1

5

Jan-1

6

Ma

r-1

6

Ma

y-16

Jul-1

6

Sep

-16

Nov-1

6

EURUSD exchange rate (%)

Source BBVA Research and Bloomberg


0.4% GDP in eurozone

7%

USD/EUR

Compared to 3 months ago EUR against USD

1.1 2015 average

3) ECB’s QE has led to euro depreciation


4) Juncker’s Plan: Impact of up to 0.5% per year in 2015-17 if sucessful

Institutions

Quantities, sectors

Guarantees, no new debt

European Fund for Strategic Investment (EFSI): EC, EIB & countries

Positive as EIB is too conservative choosing projects

Main features Evaluation

Majority control by EC

Leverage 1/15: EUR21bn onto EUR315 bn Starting mid-2015 3 years

Infrastructure projects (EUR240bn) SMEs (EUR75 bn)

Voluntary additional contributions by countries not computed as deficit

Possible way to stimulate fiscal policy through the back door

No “fresh money”, no fiscal stimulus

Likely leverage as liquidity is high, in line with other EIB projects

Key is first loss by EFSI

Need to focus on risky projects to maximize net investment

Page 13


-1

1

3

5

7

9

11

Eurozone Germany France Italy Spain Portugal Ireland

Struct.Def. at the end of 2015 2015 2014 2013 2012 2011

Structural adjustment

5) Fiscal policy more favourable than in previous years

Structural deficit adjustment 2010-2015 (% GDP) Source: BBVA Research and IMF

Page 14

Small consolidation required in 2014 and 2015 as compared to previous years

European Commission more careful not to force pro-cyclical adjustments


6) Russia: Impact through trade channel, but also on confidence and investment

Russia: Large downward revision in GDP forecast

Impact through trade channel (bilateral) seems to be limited…

Page 15

Russia: annual GDP growth forecast revision (%) Source: FocusEconomics

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2014 2015 2016

Oct-14 Feb-15

…but total effect (via other trading partners, financial channels…) could be up to -0.6pp


-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

Average drop innext 3 years

Cumulated Average drop innext 3 years

Cumulated

PERMANENT lower China GDP growth(-1.0pp)

TRANSITORY lower China GDP growth(-1.0pp)

6) China: downward revision of growth in 2016 (-0.4pp)

Page 16

Impact of lower growth in China on EMU GDP growth (pp) Source: BBVA Research

…without too much policy stimulus needed, which would increase risks (financial

fragilities and the real estate adjustment)

China: Oil price fall increases the room to manoeuvre to ensure a soft landing…

Limited impact on the eurozone (around -0.1pp). But foreign demand

remains key to underpin investment recovery


Section 1





Country breakdown

Index

Page 17


Confidence recovery is finally supporting domestic demand, especially consumption

Significant fall in confidence over the summer across countries and sectors, but

recovering at the beginning of Q1

Improving hard data

The eurozone’s economy grew at an annualised rate of just over 1% in 4Q14

Page 18

-30

-25

-20

-15

-10

-5

0

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Q1-1

1

Q2-1

1

Q3-1

1

Q4-1

1

Q1-1

2

Q2-1

2

Q3-1

2

Q4-1

2

Q1-1

3

Q2-1

3

Q3-1

3

Q4-1

3

Q1-1

4

Q2-1

4

Q3-1

4

Q4-1

4

Q1-1

5

Retail sales YoY ESI consumer confidence (rhs)

Consumer confidence and retail sales Source: Eurostat, EC and BBVA Research


Exports are recovering supported by a lower euro and stronger demand from advanced economies

UEM: Exports by destination (%QoQ) Source: BBVA Research

Page 19

The depreciation of the euro has boosted

eurozone exports…

… which have been accelerating by the end of

2014…

…especially those bound for the US and the

rest of Europe

-2

-1

0

1

2

3

4

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

Other European Union Other EuropeanAfrica AmericaAsia OceaniaRest Total


The recovery is evolving as expected, with more growth in Germany and Spain than France or Italy

MICA-BBVA GDP short term model (% QoQ) Sources: Haver and BBVA Research

Page 20

GDP growth (QoQ)

2Q14 3Q14 4Q14 1Q15 (f)

Eurozone 0,1% 0,2% 0,3% 0,3%

Germany -0,1% 0,1% 0,7% 0,5%

France -0,1% 0,3% 0,1% 0,3%

Italy -0,2% -0,1% 0,0% 0,3%

Spain 0,5% 0,5% 0,7% 0,9%

Portugal 0,3% 0,3% 0,5% 0,4% -0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

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

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

CI 20% CI 40% CI 60% Observed


-10

-8

-6

-4

-2

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016

Domestic Demand Exports Imports Net exports GDP

Forecast: growth will be between 1% and 1.5% in 2015

EMU: annual GDP growth contributions (pp) Sources: Eurostat and BBVA Research

2013

2014

(f)

2015

(f)

2016

(f)

Activity

REAL GDP (% YoY) -0,4 0,8 1,3 2,2

Private consumption -0,6 0,9 1,4 1,7

Public consumption 0,2 0,9 0,5 0,9

Investment -2,4 0,7 0,9 4,6

Domestic demand (contr. %) -0,9 0,7 1,1 2,0

Exports 2,1 3,7 4,8 4,9

Imports 1,2 3,7 4,8 5,0

Net exports (contr. %) 0,4 0,2 0,2 0,1

Current account balance(% GDP) 2,4 2,5 2,7 2,7

Public deficit (% GDP) -2,9 -2,7 -2,5 -2,0

CPI, % average 1,4 0,4 0,1 1,0

Page 21


GDP forecast by country (%) Sources: Eurostat and BBVA Research

Across countries, Germany will continue to lead France and Italy

• Germany: growth will continue to be

driven by domestic demand

• France: the pace of recovery depends

on continued structural reforms and

reinforcing competitiveness

• Italy: Finally out of recession in 2015,

though the recovery is slow

• Exports will be the main driver of growth

Page 22

-0.4

0.8

1.3

2.2

0.2

1.5 1.4

2.2

0.4 0.4

1.0

1.8

-1.9

-0.4

0.6

1.3

-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

16

20

13

20

14

20

15

20

16

20

13

20

14

20

15

20

16

20

13

20

14

20

15

20

16

EMU Germany France Italy

New projection (Jan-15) Last projection (Oct-14)


Headline inflation: significant downward revision driven by the fall in oil prices

Headline and core inflation (% YoY) Source: BBVA Research

Page 23

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

20

08

-2

20

08

-4

20

09

-2

20

09

-4

20

10

-2

20

10

-4

20

11

-2

20

11

-4

20

12

-2

20

12

-4

20

13

-2

20

13

-4

20

14

-2

20

14

-4

20

15

-2

20

15

-4

20

16

-2

20

16

-4

Headline Core

The impact of a 10% shock in oil prices is

0.2%/0.3% lower inflation, and less than

0.1% in core inflation

Negative inflation expected over the first

half of 2015, and core inflation is still very

low (below 1%)

The recovery in 2015, the end of falling oil

prices and the ECB’s QE will help to redress

inflation expectations in the medium term


24

Europe faces important challenges and risks

Short term

Medium and long term

Geopolitical risks

Several elections in 2015-16, risk of populism

Risk of stagnation and deflation

Low potential growth

Further fiscal and economic integration

Lack of consensus on reforms


Section 1





Country breakdown

Index

Page 25


Low potential growth in the EZ vs the US

US and EZ projected potential GDP growth (pp) Sources: Eurostat and BBVA Research

Lower potential well below that in the US

Page 26

Slower population dynamics and productivity growth are the main reasons of

the gap

-0.2

0.3

0.8

1.3

1.8

2.3

2.8

2014-2022 2014-2022

Capital Participation rate

Population 15-65 Structural unemployment

Productivity

EMU

US


Where do we stand after the crisis?

GDP Note: Q1-2008=100

Sources: Eurostat, Haver and BBVA Research

Page 27

109,6

103,9

101,4

98,1

96,3

94,293,1

90,5

87,5

90,0

92,5

95,0

97,5

100,0

102,5

105,0

107,5

110,0

Ma

r-0

8

Jun-0

8

Sep

-08

Dec-0

8

Ma

r-0

9

Jun-0

9

Sep

-09

Dec-0

9

Ma

r-1

0

Jun-1

0

Sep

-10

Dec-1

0

Ma

r-1

1

Jun-1

1

Sep

-11

Dec-1

1

Ma

r-1

2

Jun-1

2

Sep

-12

Dec-1

2

Ma

r-1

3

Jun-1

3

Sep

-13

Dec-1

3

Ma

r-1

4

Jun-1

4

Sep

-14

Dec-1

4

Eurozone Germany France Italy

Spain USA Portugal Ireland


Heat map of macroeconomic imbalances

Excluding aid to the financial sector **Data for France: 4Q-2012 Source: Eurostat, BCE, Haver and BBVA Research Page 28

Public DebtPublic Deficit*

Unemploy-ment Rate

Current Account

Net International Investment

Position

Real Effective Exchange

Rate

Nominal Unit Labour

Cost Household Debt

Non-Financial Corporations

Debt

% of GDP % of GDP % of GDP % of GDP 3-yr % chg. 3-yr % chg. % of GDP % of GDP

Q4-2013 2013 Latest 2013 Q4-2013** Sep. 2013 Latest Latest Latest

Eurozone 92,7 -2,8 11,8 2,4 -12,2 1,0 3,9 63,9 81,5

GER 78,4 0,0 5,1 7,5 48,3 0,1 6,1 58,2 48,5

FRA 93,5 -4,3 10,4 -1,4 -21,2 -0,7 5,2 56,7 84,0

AUT 74,5 -0,9 4,9 2,7 3,4 2,2 7,3 54,5 92,9

BEL 101,5 -2,8 8,5 -1,6 44,0 0,5 8,6 56,5 92,4

NED 73,5 -2,5 7,2 10,4 53,0 1,5 6,4 127,9 91,5

FIN 57,0 -2,1 8,5 -1,1 15,8 1,9 8,5 65,4 92,5

ITA 132,6 -3,1 12,7 1,0 -30,0 2,0 4,3 45,3 81,0

SPA 93,9 -6,6 25,3 0,8 -98,2 0,8 -5,3 81,3 114,0

POR 129,0 -4,5 15,2 0,5 -118,7 0,2 -1,3 86,8 130,8

IRE 123,7 -6,7 11,8 6,6 -104,9 -2,4 -3,4 105,1 201,3

GRC 175,1 -2,1 26,5 0,7 -119,0 -3,9 -11,1 64,5 64,8

DEN 44,5 -0,9 6,5 7,3 39,6 -1,4 3,8 139,2 97,9

SWE 40,6 -1,1 8,1 6,2 -4,8 3,1 6,2 83,4 121,2

U.K. 90,6 -5,7 6,7 -4,4 -1,3 3,9 6,2 93,1 83,8Colour criterion:

Higher than 130 Lower than -6 Higher than 16 Lower than -6 Lower than -100 Greater than 6 Greater than 9 Greater than 110 Greater than 140

110/130 -6/-5 13/16 -6/-4 -100/-50 4/6 6/9 90/110 120/140

90/110 -5/-4 10/13 -4/-2 -50/0 2/4 3/6 75/90 100/120

60/90 -4/-3 7/10 -2/0 0/20 0/2 0/3 60/75 80/100

Lower than 60 Higher than -3 Lower than 7 Greater than 0 Greater than 20 Lower than 0 Lower than 0 Lower than 60 Lower than 80


Unit labour costs adjustment, 2009-2013 (%) Sources: Haver y BBVA Research

Unit labor costs have adjusted in the periphery

In some countries this was due to increased productivity caused by the decline in

employment

Wage moderation has also played an important

role, especially in comparison with the core countries

Page 29

-20

-15

-10

-5

0

5

10

15

Gre

ece

Irela

nd

Sp

ain

Port

ug

al

EA

17

De

nm

ark

Ge

rma

ny

Ita

ly

Fra

nce

Ne

therl

and

s

Un

ite

d K

ing

dom

Au

str

ia

Fin

lan

d

Be

lgiu

m

Labour Productivity (Sign switched) Wages Unit Labour Cost


Current account (% GDP) Sources: Eurostat and BBVA Research

Current account deficits have disappeared very fast

Current account (% GDP) Sources: Eurostat and BBVA Research

Most countries in the euro zone are now in surplus (except for France)

Part of the adjustment is due to the recession (less imports), but exports have also played an

important role

Page 30

-15,0

-10,0

-5,0

0,0

5,0

10,0

15,0

Sep

-01

Sep

-02

Sep

-03

Sep

-04

Sep

-05

Sep

-06

Sep

-07

Sep

-08

Sep

-09

Sep

-10

Sep

-11

Sep

-12

Sep

-13

Sep

-14

Germany France ItalySpain Portugal Netherlands

CORE PERIPHERY

-20

-10

0

10

20

EUR GER FRA IRL ITA GRC POR SPA

Current account balance: Q2 2014 Q1 2010

Contribution from growth in:

Exports Imports (inverted sign) Other items*


Unemployment since the beginning of the crisis (%) Sources: Haver and BBVA Research

The high unemployment remains the main problem of economic policy

The unemployment rate is well above that of

2008 (except in Germany)

Even so, it has begun to decrease earlier than

in other recoveries

Page 31

0

5

10

15

20

25

30

EA

18

GER

FR

A

AU

T

BEL

NLD

FIN

ITA

SP

A

PO

R

IRE

GR

C

CY

P

SLV

SLK

DEN

SW

E

UK

Last Feb-08 Feb-13

February 2015

Europe Outlook


Section 1



Forecast: solid growth from 2H15, … Section 4

… although the challenges remain Annex

Country breakdown

Index

Page 33


Germany: growth gains momentum

The strong labour market will help private consumption to increase gradually

Uncertainty caused by geopolitical conflicts could lead companies to continue delaying

their investment plans to 2016

2013 2014 (f) 2015 (f) 2016 (f)

Activity

REAL GDP (% YoY) 0,2 1,5 1,4 2,2

Private consumption 0,9 1,1 1,5 1,8


Investment -0,4 3,1 2,0 4,0

Domestic demand (contr. %) 0,7 1,1 1,4 1,9

Exports 1,7 3,7 4,2 5,5

Imports 3,2 3,3 4,9 5,8

Net exports (contr. %) -0,5 0,4 0,0 0,2

External sector

Current account balance (% GDP) 6,7 7,1 7,2 6,9

Public finances

General Govt. Balance (% GDP) 0,1 0,2 0,0 0,0

Prices

CPI, % avg. 1,6 0,8 0,3 1,1

Page 34

Net exports will play a minor role in contributing to growth


Germany: growth in 4Q14 supported by domestic demand factors

Ifo confidence, composite PMI and manufacturing orders from abroad Source: BBVA Research

Private consumption begins to grow at rates consistent with the favorable labor market

conditions

The liberalization of some services sectors would help boost consumption and domestic

growth

Page 35

-10

-5

0

5

10

15

20

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

Nov-1

1

Jan-1

2

Mar

-12

May-1

2

Jul-1

2

Sep-1

2

Nov-1

2

Jan-1

3

Mar

-13

May-1

3

Jul-1

3

Sep-1

3

Nov-1

3

Jan-1

4

Mar

-14

May-1

4

Jul-1

4

Sep-1

4

Nov-1

4

Jan-1

5

Ifo confidence indexPMI CompositeForeign Manufacturing Orders (YoY, rhs)3-per M.A. (FMO)


France: recovery still slow in 2015

2013 2014 (f) 2015 (f) 2016 (f)

Activity

REAL GDP (% YoY) 0,4 0,4 1,0 1,8

Private consumption 0,3 0,4 1,3 1,4


Investment -0,8 -1,5 0,0 3,5

Domestic demand (contr. %) 0,3 0,4 0,9 1,7

Exports 2,4 2,5 3,5 5,3

Imports 1,9 2,5 3,0 5,0


External sector

Current account balance (% GDP) -1,4 -1,6 -1,5 -1,5

Public finances

General Govt. Balance (% GDP) -4,1 -4,4 -4,3 -3,7

Prices

CPI, % avg. 1,0 0,6 0,1 0,9

Page 36

The recovery in 2015 and 2016 will be based on domestic factors, especially

consumption

The delay in the deficit adjustment should also help


France: fiscal targets loosening to help economy recover

Unit labour costs (2005=100) and current account balance Note: Unit labour costs normalized to 100 in 2005 Source: BBVA Research

The loss of competitiveness is the main issue

in the medium term

The planned cuts in the tax burden on employment should be financed by lower

public spending

Page 37

-2,5

-2,0

-1,5

-1,0

-0,5

0,0

95

100

105

110

115

120

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

FRA Current Acc. Balance (%GDP) RHS

Eurozone

France

Germany

Spain


Italy: out of recession in 2015

2013 2014 (f) 2015 (f) 2016 (f)

Activity

REAL GDP (% YoY) -1,9 -0,4 0,6 1,3


Public consumption -0,7 -0,4 -0,5 0,0

Investment -5,4 -2,6 -0,5 2,7

Domestic demand (contr. %) -2,8 -0,8 0,1 0,9

Exports 0,9 1,8 4,0 4,9

Imports -2,6 0,3 2,5 4,0


External sector

Current account balance (% GDP) 1,0 1,1 1,3 1,9

Public finances


Prices

CPI, % avg. 1,3 0,2 -0,2 0,6

Page 38

We continue to expect a slow recovery in 2015 (0.6%), driven by exports

Investment will still be affected by uncertainty linked to the slow pace of

reforms


Italy: reforms needed to increase the growth potential

GDP/working age population (2000=100) Source: BBVA Research

In fiscal policy, the main problem is the high volume of public debt (132.7%), while the deficit reduction is slower than expected

The growth potential is very low

…but could recover, should fiscal and labour market reforms underway be

completed

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Italy Spain Eurozone


Spain: growth revision to the upside

2013 2014 (f) 2015 (f) 2016 (f)

Activity

REAL GDP (% YoY) -1,2 1,4 2,7 2,7


Public consumption -2,9 0,8 1,5 1,4

Investment -3,8 2,8 5,2 6,4

Domestic demand (contr. %) -2,7 2,1 2,7 2,4

Exports 4,3 4,4 6,1 7,2

Imports -0,5 7,6 6,8 7,1

Net exports (contr. %) 1,4 -0,7 0,0 0,2

External sector

Current account balance (% GDP) 1,4 -0,2 0,9 1,0

Public finances


Prices

CPI, % avg. 1,4 -0,2 -0,4 1,4

Page 40

Both in 2015 and in 2016, activity will grow by 2.7%, supported by internal and external

factors

The recovery in the fundamentals and the change in tone of fiscal policy will contribute

to the sustained recovery in domestic demand

The contribution of net external demand to growth will be virtually nil


Spain’s deviation from the EU8 in 2013 Source: BBVA Research, based on Andrés & Doménech (2014)

Between 2015 and 2016 1,000,000 jobs will be created

Spain faces the challenge of raising its employment rate and its productivity

A return to the road of convergence

Spain: the labour market is improving, but challenges remain

Page 41

February 2015

Europe Outlook

Date post:	14-Jul-2015
Category:	Economy & Finance
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Presentation "Europe Outlook. First Quarter 2015"

Economy & Finance