Spain: Consumption Outlook - BBVA Research · 2018-12-21 · Consumption Outlook / March 2011 Page...

Spain:Consumption OutlookBarcelona, 3 March 2011

Consumption Outlook / March 2011

Page 2

• Divergences in the world economy (developed vs. emerging, central Europe vs. the peripheral, financial economy vs. real economy) will influence economic policy responses

• Economic and institutional reforms in Europe will be key to resolving the financial crisis

• Spain’s economic growth will continue to be affected by weak domestic demand and the push from export demand

• The sovereign debt crisis confirms the importance of maintaining the reforming effort

• The increased pace of fiscal consolidation modified household spending patterns in 2010

• Given their increased sensitivity to fluctuations in price and income, consumption of durable goods was especially affected by the change in tone of fiscal policy

• The expected weakening in demand does not point to an increase in consumer credit in the short term

• BBVA surveys of economic activity and business trends: companies and managers see improved outlook for 1H11, bolstered by a favourable forecast for the credit supply

Key themes


Page 3

Contents

1. International environment: decoupling continues

2. Growth outlook for the Spanish economy: boost from foreign demand while domestic demand remains weak

3. Factors affecting present and future trends in consumer spending of households

4. Consumption of durable goods: especially affected by the deeper fiscal adjustment in 2H10

5. Two complementary approaches to the study of the economic situation in the retail sector: the BBVA surveys of economic activity and business trends


Page 4

Strong growth in the global economy driven by emerging markets• Global growth remains strong: having ended 2010 with a growth rate of 4.8%, the world economy is set for

a mild slowdown (4.4% in 2011 and 2012)

• Greater dynamism from emerging economies (especially the EAGLES©)

• Intensified decoupling among developed economies: US vs. EMU, core European states vs. peripheral nations

Contribution to global growth (%)Source: BBVA Research

Growth forecasts (%)Source: BBVA Research

Section 1

International environment

-3

-2

-1

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 (e) 2012 (e)

Rest of world Emerging marketsOther advanced Ecs. Euro zoneUS Global growth

0

3

6

9

12

US EMU China Asianemerging

exc. China

LatAm7 EAGLES©

2010 2011 (e) 2012 (e)


Page 5

US growth outlook improves• Causes: favourable macroeconomic data and new

monetary and fiscal stimuli• Growth forecasts were revised up by 0.7pp (to 3%) in

2011...• ... still too weak to significantly reduce the

unemployment rate

In Europe, a window of opportunity is opening to resolve the crisis and narrow economic divergences• Financial pressures heightening due to doubts about

resolving the debt crisis• Credibility of stress tests under question (Irish

financial system)• Changes in governance and boost to reforms:

essential to reducing core-periphery divergence

US: Unemployment rate (%)Source: BBVA Research and Bureau of Labor Statistics

Section 1


Growth forecasts in the EMU (%)Source: BBVA Research

-5

-4

-3

-2

-1

0

1

2

3

4

EMU

16

DEU

FRA

ITA

ESP

IRL

PR

T

GR

C

2010 e 2011 (e)

0

2

4

6

8

10

12

71 74 77 80 83

86

89

92

95

98 01

04

07 10

13 (e

)

Unemployment rate NAIRU


Page 6

Rising commodity prices have spurred inflation indicators• Commodity prices have been rising over recent months due to a number of short-term factors: bad

weather and greater investment flows into commodity markets

• Stabilisation of commodity prices scenario

• Neither inflationary expectations nor core inflation pose any threat to monetary policy

Core inflation (% yoy)Source: BBVA Research based on Eurostat and BA

Oil price, USD/barrelSource: BBVA Research and Bloomberg

Section 1


0.0

0.5

1.0

1.5

2.0

2.5

3.0

Mar

08

Jun

-08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

USA EMU

0

20

40

60

80

100

120

140

160

200

4

200

5

200

6

200

7

200

8

200

9

2010

Adjustment for financial and risk premium

Fundamentals Price


Page 7

Contents







Page 8

After a pause in 3Q10, the Spanish economy returned to growth in 4Q10 and 1Q11• The Spanish economy grew two tenths of a point in the fourth quarter of 2010...

• ... and will continue to grow by between two and three tenths of a point in 1Q11

• 2010 ended with an annual 0.1% fall in GDP, effectively stagnation

Spain: observed GDP growth and forecastsbased on MICA-BBVA model (% qoq)Source: BBVA Research and National Statistics Institute

However, growth was too weak to create jobs

Private domestic demand remained roughly stagnant…

… while public domestic demand helped meeting the public sector deficit targets in 2010

External demand again sustained growth in the Spanish economy

The temporary rise in crude prices mitigated the fall in the current account deficit

Section 2

Growth outlook

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

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

Point estimation First release

Current forecast: 2 March 2011


Page 9

Outlook 2011-2012: adjustments continueNegative contribution from the public sector and weak recovery in private domestic demand

Spain: Contributions to GDP growth (pp) Source: BBVA Research based on National Statistics Institute data

Internal demand

• Fiscal consolidation

• Ongoing adjustments to the private sector

• Monetary policy set to remain accommodative

• Despite moderation, financial pressures remain high

Factors affecting the outlook for 2011-2012

Section 2

Growth outlook

-8

-6

-4

-2

0

2

Public sector consumption

-8

-6

-4

-2

0

2

2008 2009 2010 2011 (e) 2012 (e)

Other construction Residential constructionEquipment and otherHouseholds consumption Domestic demand


Page 10

Outlook 2011-2012: adjustments continueExports will continue to lead recovery

Spain: Contributions to GDP growth (% yoy)Source: BBVA Research based on National Statistics Institute and Eurostat data

External demand

Factors affecting the outlook for 2011-2012

• Better outlook for European and global economies

• Euro exchange rate less strong than expected three months ago

• Continued gains in real competitiveness and diversification towards emerging economies

6 6

Section 2

Growth outlook

-8

-6

-4

-2

0

2

4

2008 2009 2010 2011 (e) 2012 (e)

-8

-6

-4

-2

0

2

4

Domestic demand External demand GDP


Page 11

Outlook 2011-2012: adjustments continue• Recovery will be weak in the short term• In 2012, the economy will return to 1.9% growth, enough to create jobs but not to significantly reduce the

unemployment rate

Section 2

Growth outlook

Macroeconomic forecastsSource: National Statistics Institute, Bank of Spain, Eurostat and BBVA Research

2009 2010 2011 2012

Public consumption 3.2 2..4 -0.7 0.7 -0.3 0.4 -0.3 0.7

Other -0.1 -4.9 -7.2 -3.8 -4.1 -0.3 1.0 0.8

Unemployment rate (% active pop.) 18.0 9.5 20.1 10.0 20.6 10.0 20.1 9.9Current account balance (% GDP) -5.5 -0.7 -4.5 -0.5 -3.1 0.0 -2.8 0.1Public sector balance (% GDP) -112 -6.3 -9.2 -6.5 -6.0 -4.7 -4.5 -3.9CPI annual average -0.3 0.3 1.8 1.6 1.9 1.8 1.3 1.6

(yoy chg, %)Spain EMU Spain EMU Spain EMU Spain EMU

Household consumption -4.3 -1.0 1.3 0.7 0.2 1.0 1.2 1.5

GFCF -16.0 -11.3 -7.5 -1.0 -2.9 1.6 3.4 2.0Capital goods & other prods. -21.2 -15.9 -2.1 2.5 0.6 2.8 5.0 3.2Capital goods -24.5 -17.6 1.9 3.6 0.7 2.7 5.5 3.0Other products -16.2 -7.6 -7.8 -2.3 0.3 3.2 4.2 4.2Construction -11.9 -7.8 -11.1 -3.5 -5.3 -0.2 2.3 0.8Housing -24.5 -10.7 -16.5 -3.3 -7.1 -0.1 4.1 0.7

Chg. in inventories (*) 0.0 -0.7 0.1 1.3 0.0 0.1 0.0 0.0Domestic demand (*) -6.4 -3.3 -1.1 1.7 -0.7 1.1 1.4 1.4Exports -11.6 -13.1 10.3 9.7 9.1 6.9 7.0 5.7Imports -17.8 -11.8 5.5 9.9 2.0 5.6 4.6 4.9Net exports (*) 2.7 -0.8 1.0 0.0 1.6 0.6 0.5 0.4

GDP mp (% yoy) -3.7 -4.0 -0.1 1.7 0.9 1.7 1.9 1.8Pro-memoria:GDP w/out housing investment -1.9 -3.7 0.9 2.0 1.4 1.8 1.7 1.8GDP w/out construction -2.1 -3.6 1.7 2.3 1.9 1.9 1.8 1.9Employment (LFS) -6.8 -1..8 -2.3 -0.4 -0.2 0.4 1.1 0.6


Page 12

Outlook 2011-2012: adjustments continueAt regional level, the imbalances generated during the boom and crisis will impact recovery in 2011. Spanish growth is still marked by sharp regional divergences

Spain: GDP growth in 2011 By region (%, yoy)Source: BBVA Research based on National Statistics Institute data

Source: BBVA Research based on National Statistics Institute data

Section 2

Growth outlook

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

MA

D

PV

A

NA

V

RIO

BA

L

EXT

ESP

AR

A

CN

R

CN

T

AST

CA

T

AN

D

CY

L

MU

R

VA

L

GA

L

CLM

Surp

lus

ho

usi

ng

su

pp

lies

Pri

vate

Deb

t

Un

emp

loym

ent

Deb

t A

uto

no

mo

us

Reg

ion

s

Pu

blic

C

on

solid

atio

n

Ext

ern

al

op

enn

ess

Glo

bal

Ind

ex

Basque country ✓ ✓ ✓ 7,2

Asturias ✓ 3,5

Cantabria ✓ ✓ 3,5

Madrid ✓ 3,4

Navarre ✓ ✓ ✓ 2,3

Aragón ● 1,2

La Rioja 1,1

Galicia 0,4

C. & Leon ✓ 0,2

Balearic Is ● ● ✓ -0,2

Catalunya ● ✓ -0,7

Extremadura ✓ ● ● -1,5

Canary Is ● ✓ -1,6

Murcia ● ● ● -4,3

C. La Mancha ● ● ● ● -4,7

C. Valenciana ● -4,7

Andalusia ● ● ● ● -5,2


Page 13

However, uncertainties remain as to how dynamic the recovery will be

Downward risk factors

• Delays in resolving Europe's governance issues

• Risks related to financial system restructuring

• Failure to meet deficit targets

• Possible second round effects from the recent rise in crude prices

Upward risk factors

• Stronger growth in the global economy

• Consolidation of structural reform process:

− long-term sustainability of public pension system

− efficient Public Administrations funding systems, and

− resolution of regulatory issues affecting markets for goods and services

Section 2

Growth outlook


Page 14

Contents







Page 15

Factors affecting present and future trends in consumer spending of households:1. Decrease in risk aversion

2. Correction of imbalances accumulated prior to (deleverage) and during (unemployment) the crisis

3. Consequences of heightening financial pressures

4. Acceleration of fiscal consolidation process

Spain: household consumption (% yoy)Source: BBVA Research based on National Statistics Institute data

Section 3

Factors shaping consumption

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Mar

08

Jun

-08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

2011

2012


Page 16

Decrease in risk aversion1

Section 3


Uncertainty will gradually decrease, reducing saving as a precautionary measure

Spain: household consumption, GDP and confidence indicator (t-1) (%)Source: BBVA Research based on National Statistics Institute and EC data

Spain: household saving rate (% GDHI)Source: BBVA Research based on National Statistics Institute data

-6

-4

-2

0

2

4

6

8

Dec

86

Dec

87

Dec

88

Dec

89

Dec

90

Dec

91

Dec

92

Dec

93

Dec

94

Dec

95

Dec

96

Dec

97

Dec

98

Dec

99

Dec

00

Dec

01

Dec

02

Dec

03

Dec

04

Dec

05

Dec

06

Dec

07

Dec

08

Dec

09

Dec

10

-46

-38

-30

-22

-14

-6

2

10

Consumption % yoy (lhs) GDP % yoy (lhs)

Confidence indicator t-1 (rhs)

5

9

13

17

21

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

2010

2011

2012


Page 17

Acceleration of fiscal consolidation process2• During the first half of 2010, consumer spending rose temporarily as a result of consumers bringing forward

purchases in response to the Government's announcement to accelerate the fiscal consolidation process in the second half of the year

• Changes in consumption patterns combined with the direct contraction effects caused by the fiscal policy measures contributed to a decline in spending in 3Q10 (-1.0% yoy).

• Higher VAT will have a permanent impact on consumption. The negative impact on consumption growth was concentrated in 3Q10 (4Q10: +0.3% yoy)

Section 3


Spain: household consumption (% yoy)Source: BBVA Research and Bureau of Labor Statistics

Spain: response to a 2pp VAT hike(Deviation from trend in pp.)Source: BBVA Research

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Consumption GDP

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Quarters

VAT rise in T=0

GDP Consumption


Page 18

Section 3


• International empirical evidence indicates that:– deleveraging starts some time after a financial crisis

unfolds

– it is a slow process which persists for around five years in developed economies

• The decrease in disposable income in 2H10 contributed to the stagnation of household credit

Credit as a percentage of GDP ten years before and after a financial crisisSource: BBVA Research based on Reinhart and Reinhart (2010)

Spain: household credit and GDHI (% yoy)Source: BBVA Research

80

* Spain (1977), Norway (1987), Finland (1991), Sweden (1991), Japan (1992); ** Indonesia, Korea, Malaysia, Philippines, Thailand; *** Argentina (2001), Chile (1981), Columbia (1988), Mexico (1994), Turkey (2001)

Years to reach maximum credit/GDP ratio

Years to reach minimum credit/GDP ratio

60

40

20

0

-20

-40

-60

-80Average

9

7 75 10

9 9 9

Difference between min. and max. credit/GDP ratio in decade prior to crisisDifference between min. and max. credit/GDP ratio in decade after crisis

Crisis inDeveloped economies*

Crisis inAsia**

Other crises inemerging* economies**

-6

-4

-2

0

2

4

6

8

10

12

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Household credit Nominal GDHI

Correction of imbalances: deleverage3


Page 19


Section 3


During 2H10, consumer credit continued to decline in Spain, while it began to grow in the EMU, bolstering the convergence process

Consumer credit (% yoy)Source: BBVA Research based on BoS and ECB data

Consumer credit as a percentage of GDP (%)Source: BBVA Research based on BdE, ECB, National Statistics Institute and Eurostat data

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan

08

Jun

08

No

v 0

8

Ap

r 0

9

Sep

09

Feb

10

Jul 1

0

Dec

10

EMU Spain

* Consumer credit handled: including securitisations

6%

7%

8%

9%

10%

11%

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

2010

EMU Spain

* Consumer credit handled: including securitisations


Page 20

Section 3


The expected weakness in demand and persistently high default rates suggest consumer credit will not rise in the near term

Spain: household default rate (%)Source: BBVA Research based on BoS data

Spain: interest rates for new consumer credit transactions (%)Source: BBVA Research based on BoS data

0

2

4

6

8

10

12

2003 2004 2005 2006 2007 2008 2009 2010

Up to 1 year Between 1 and 5 years

Over 5 years Weighted average

0%

1%

2%

3%

4%

5%

6%

7%

8%

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Home purchases Durable consumer goodsOther household financing Total households



Page 21

Section 3


The most recent Spanish bank-lending survey indicates that access to credit will not be restricted at the beginning of the present year, while demand will continue to be weak, in line with the trend prevailing during the second half of 2010

Spain: bank-lending survey (% responses)Source: BBVA Research based on BoS data

-60

-50

-40

-30

-20

-10

0

10

20

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(

e)

Supply Demand

Expan

sive.R

estrictive



Page 22

Section 3


• The decline in the labour market is easing off, but will not be sufficient to offset the reduction in salaries as a percentage of GDHI in 2011, the rate of decline of which will slowdown in 2011

• Real income will not grow until the start of 2012

Spain: employment and unemployment rate (%)Source: BBVA Research based on National Statistics Institute data

Spain: Real gross disposable household income (% yoy)Source: BBVA Research based on National Statistics Institute data

-8

-6

-4

-2

0

2

4

6

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

2010

2011

2012

-8

-6

-4

-2

0

2

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

2011

2012

8

11

14

17

20

23

Employment Unemployment rate (rhs)



Page 23

Financial stress4

Section 3


The difficulties some entities are encountering in raising financing are resulting into higher rates on deposits, which encourages saving to the detriment of consumption

Spanish financial system: ECB fundingSource: BBVA Research based on BoS data

Spread between rates offered on term deposits and 12m Euribor (pp)Source: BBVA Research based on central bank data

0

100

200

300

400

500

600

700

Jan

08

Ap

r 0

8

Jul 0

8

Oct

08

Jan

09

Ap

r 0

9

Jul 0

9

Oct

09

Jan

10

Ap

r 10

Jul 1

0

Oct

10

Jan

11

0%

5%

10%

15%

20%

25%

30%

35%

Thousand millions euros% of Euro system total (rhs)

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

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

Germany Spain

Start crisis

Start decreases


Page 24

Contents





5. Two complimentary approaches to the study of the economic situation in the retail sector: the BBVA surveys of economic activity and business trends


Page 25

As it is more sensitive to fluctuations in prices and income, domestic demand for durable goods was particularly affected by the deeperfiscal adjustment in 2H10 • The VAT hike in July, the cut in public sector salaries, and the end of Plan 2000E gave rise to a change

in the pattern of household spending over time

• Between June and December, the availability of durables fell 32.3%, with the greatest decline in 3Q10 (-18.2%)

Spain: final household consumer spending and availability of consumer goods(SWDA data, yoy %)

Source: BBVA Research based on National Statistics Institute and Ministry of Economy and Finance data

Section 4

Durable consumer goods

-25

-20

-15

-10

-5

0

5

10

15

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10 -2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

Consumption (QNA) (rhs) Total consumption

Durables Non-durables


Page 26

In contrast, export demand improved, driven by the dynamism of the European economy -especially Germany- and robust demand from emerging economies

Spain: real exports of goods(SWDA data, yoy %)Source: BBVA Research based on National Statistics Institute and Ministry of Economy and Finance data

• Exports of durable goods rose 13.9% between June and December, almost 5pp higher than the total for all goods

• External demand for consumer durables continues to be heterogeneous

Spain: real exports of goods(SWDA data. Accumulated six-month growth %)Source: BBVA Research based on National Statistics Institute and Ministry of Economy and Finance data

Section 4


79.9

13.1 5.4 9.5 2.8

-13.7

13.9 8.2

-20

0

20

40

60

80

100

Ho

use

ho

ld

app

lian

ces

Car

s ITeq

uip

men

t

Co

nsu

mer

elec

. go

od

s

Furn

itu

re

Mo

torc

ycle

s&

mo

ped

s

Du

rab

les(

*)

To

tal g

oo

ds

1H10 2H10(*) Household appliances, consumer electronic goods, IT equipment, furniture, motorcycles and cars

-25

-20

-15

-10

-5

0

5

10

15

20

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Total (QNA) Goods (Customs)Durables Goods (QNA)

(*) Household appliances, consumer electronic goods, IT equipment, furniture, motorcycles and cars


Page 27

• With the VAT hike coinciding with the end of Plan 2000E, demand for cars was particularly affected by the acceleration of the fiscal consolidation process

– After a first quarter of gradual weakening of growth, car registrations plummeted in July (-33.1% mom, SWDA)

– Since then, the number of car registrations hardly moved, excluding changes due to seasonal effects

– The lack of demand for private use is the main driver

Section 4


Spain: car registrationsSource: BBVA Research based on ANFAC and Ganvam data

Spain: car registrations (Contributions to % yoy)Source: BBVA Research based on ANFAC and Ganvam data

Cars

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

Jan

09

Feb

09

Mar

09

Ap

r 0

9M

ay 0

9Ju

n 0

9Ju

l 09

Au

g 0

9Se

p 0

9O

ct 0

9N

ov

09

Dec

09

Jan

10

Feb

10

Mar

10

Ap

r 10

May

10

Jun

10

Jul 1

0A

ug

10

Sep

10

Oct

10

No

v 10

Dec

10

Jan

11

Feb

11 -91

-78

-65

-52

-39

-26

-13

0

13

26

39

52

65

% mom (lhs) % qoq (lhs) yoy (rhs)

Plan 2000E

-60%

-40%

-20%

0%

20%

40%

60%

80%

Jun

09

Jul 0

9A

ug

09

Sep

09

Oct

09

No

v 0

9D

ec 0

9Ja

n 1

0Fe

b 1

0M

ar 1

0A

pr

10M

ay 1

0Ju

n 1

0Ju

l 10

Au

g 1

0Se

p 1

0O

ct 1

0N

ov

10D

ec 1

0Ja

n 1

1Fe

b 1

1

Private use Productive use Rent-a-car

Total

Plan 2000E(Jun 09 - Jun 10)


Page 28

• The drop in sales of used cars (UC) has been significantly lower than the decrease in new car (NC) sales

• The ratio of UC to NC therefore stands at approximately 1.6 in 2010, the highest in the last decade

Spain: car salesSource: BBVA Research based on ANFAC and Ganvam data

Section 4


What has caused this change in sales?

Two reasons:

• Change in the type of households purchasing UC

• Changes in preferences

• Need to identify what drives consumers to purchase new or used once they have decided to acquire a car

Cars

-30

-20

-10

0

10

20

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0.6

0.8

1.0

1.2

1.4

1.6

UC (% yoy) NC (% yoy) Ratio UC/NC (rhs)


Page 29

Minor qualitative changes in the type of households purchasing UC

Section 4


Crisis

• Autonomous regions: Extremadura, Aragon, Murcia, La Rioja

• Household:– with five or more members– with three or more employees– net monthly income between €2,500 and

€3,000• Housing:

– rented– sparsely populated area

• Main breadwinner:– male– under 35 years old– foreign– Vocational training

Pre-crisis

• Autonomous regions: Andalusia, Balearic Islands, Murcia, Navarre

• Household:– with five or more members– with three or more employed– net monthly income between €2,500 and

€3,000• Housing:

– rented– semi-urban or sparsely populated

• Main breadwinner:– male– under 35 years old– foreign– Primary or secondary education

Cars


Page 30

• To identify if purchasing households preferences are changing, it is necessary to separate the decision to purchase from the decision on which type of vehicle to acquire

Section 4


Which variables improve the probability of purchasing a car?

• Households in: Catalonia, Madrid, Extremadura and the Basque Country

• With a mortgage• Second home owned by household• Main breadwinner: male, married, foreign• Increases with:

– level of education– household income– number of employees

• Decreases with:– number of dependant children– size of municipality– age of main breadwinner

• …

• While the number of variables influencing the probability of purchasing a car is high…

Cars

Cars

Don’t buy

Buy

NC

UC


Page 31

• …, only income levels, home ownership. rental, the level of education of the main breadwinner and their nationality directly affect the probability of choosing a UC

• The magnitude of the effects has changed during the crisis:1. The negative impact of income level (effective or permanent) has strengthened during the crisis, which explains the

higher concentration of spending at lower values (the “1,000-euro earner” UC)

Probability of purchasing vs. probability of choosing a UC. Effects of income level(%) Reference category: below €1,000Source: BBVA Research

Spain: distribution of real spending per household in UCSource: BBVA Research

Section 4


0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0 5 10 15 20 25 30 35 40

Thousands of €

Den

sity

2006 2009

Cars

-45%

-30%

-15%

0%

15%

From €1,000 to less than

€1,500

From €1,500 to less than€2,000



€3,000or more

Purchase in 06 Purchase in 09UC 06 UC 09


Page 32

• The magnitude of the effects has changed during the crisis:

Section 4


2. Stronger correlation between demand for cars and residential investment: households owning homes are NC purchasers while tenants purchase UC

3. Natives and immigrants are converging with respect to preferences for UC: the effect of nationality on the probability of choosing a UC has diluted due to the crisis

Effect of home ownership vs. rental on the probability of choosing a UC(%) Reference category: Home owner without mortgageSource: BBVA Research

Effect of nationality of main breadwinner on the probability of choosing a UC(%) Reference category: foreignSource: BBVA Research

-20%

-10%

0%

10%

20%

30%

40%

50%

Ownership withmortgage in force

Rented Transferred

2006 2009

-50%

-40%

-30%

-20%

-10%

0%

10%

Spanish

2006 2009

Cars


Page 33

• The Plan Moto-E - extended until the end of 2010 or until the allocated budget runs out - has continued to be ineffective– The exclusion of motorcycles with higher cylinder capacity from the programme and the requirement to get rid of used

motorcycles have been the main factors contributing to the lack of success

• The number of motorcycle registrations fell by 15.7% (SWDA) between June and December last year. Nonetheless, total registered motorcycles did not fall (2.7 million units at 2010 year end)

Section 4


Spain: output and registrations of motorcycles(SWDA data, yoy %)Source: BBVA Research based on National Statistics Institute and Ministry of Economy and Finance data

Motorcycles

-45

-30

-15

0

15

30

45

60

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

Output Registrations

Plan Moto-E


Page 34

• After two years of double-digit declines, the decrease in the turnover of the furniture sector eased off in 2010 to -6.1%– The temporary slowdown in the decline of the real estate market, underpinned by the end of the tax break on home

acquisitions in 2010, stimulated furniture demand. Despite the weakness of consumption, the prices of furniture and other fittings continued to rise in 2H10

• A common feature of durable goods is their illiquidity. This means that in times of uncertainty, the replacement rate falls, driving up demand for maintenance and repair services

Furniture consumer prices (1Q08 = 100)Source: BBVA Research based on National Statistics Institute data

Spain: real spending on furniture (% yoy)Source: BBVA Research based on National Statistics Institute data

-40 -30 -20 -10 0 10 20 30

Section 4


Large furniture

Furnishings

Flooring

Repair and acquisition ofaccessories

Textiles and repairs thereof

Curtains, net curtains, mattresses and awnings

2009 2008

Furniture

99

100

101

102

103

104

105

106

107

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Furniture Other fittings General CPI


Page 35

• As with furniture, the effect of the VAT rise on demand was mitigated by the complementary nature of housing purchases and the acquisition of household appliances

• The number of homes sold fell by 4.4% in 2010 (while turnover dropped by 4.0%), after a 1.9% rise yoyduring the first six months of the year– Sales of all groups of household appliances – except for tumble driers - fell; sales of washing machines, dishwashers,

ovens and stove tops decreased below the average

Section 4


Spain: household appliance sales by family (% yoy)Source: BBVA Research based on ANFEL data

Spain: household appliance consumer prices (1Q08 = 100)Source: BBVA Research based on National Statistics Institute data

Major appliances

-40-30-20-10

0102030

Refrigerators

Freezers

Washing machines

Tumble dryers

DishwashersStoves

Ovens

Stovetops

Total

2008 2009 Jan-Jun 2010 2010

88

92

96

100

104

108

112

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Jan

11

Total appliancesRefrigerators, washing machines and dishwashersStoves and ovens Other appliancesRepair of household appliances General


Page 36

• The bringing forward of purchases has significantly affected consumption of consumer electronic products, but not consumption of ICT equipment (different elasticity-price)

• The brown goods sector continued to be affected by persistent price deflation, which has continued to ramp up the penetration of ICT equipment in homes

Spain: real retail sales of consumer electronics and ICT equipment(SWDA data, yoy %)Source: BBVA Research based on Eurostat data

Spain: household penetration rate (%)(% of households)Source: BBVA Research based on National Statistics Institute data

2009

Section 4


0 20 40 60 80 100

MP3/MP4

Video

Music system

Computer

DVD

Landline

Radio

DTT

Mobile telephone

TV

2010

Consumer electronics and ICT equipment

-15

-10

-5

0

5

10

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Non-food products ITCConsumer electronics


Page 37

Contents







Page 38

• To understand the economic position of a sector and its outlook, relevant quantitative and qualitative data on the companies operating therein are required

• It is also recommended that the views of the financial institutions intermediating in the sector under analysis are taken into account

• To fulfil these requirements, BBVA conducted the Economic Activity Survey (EAS) and the Business Trends Survey (BTS)

– Survey population: corporate clients (757) and managers (210) of BBVA Finanzia operating in the retail sectors of consumer goods - mainly durables - and services

Section 5

BBVA surveys of economic activity and business trends

• Car and motorcycle sales and repairs• ICT equipment retail sales

• Ironmongery, paint and glass retail sales

• Household appliance retail sales

• Furniture retail sales

• Medical and orthopaedic products retail sales

• Cosmetic and hygiene products retail sales

• Retail sales of other products that are not sold by specialist establishments

• Retail sales of other lending activities

Economic activities


Page 39

• The share of the car distribution sector is comparatively high in both surveys

• The composition of the sample in the BTS is more balanced than in the EAS

Composition of samples by sector of activitySource: BBVA Research

Economic Activity Survey Business Trends Survey

Section 5


23.1%

6.6%63.4%

Sale, maintenance and repair of

motorvehicles

Other retail sales

Retail sales of major appliances and electronics andICT equipment

Sale, maintenance and repair of motorcycles

Retail sales of furniture

4.2%

2.6%

14.7%

15.0%

14.1%

43.6%

12.5%

Sale, maintenance and repair of

motorvehicles

Other retail sales

Retail sales of major appliances and electronics andICT equipment

Sale, maintenance and repair of motorcycles

Retail sales of furniture


Page 40

Headline resultsExtremely weak consumption which had a significant negative impact on companies' results in 2H10

Business position: 2H10 vs. 1H10 (% answers)Source: BBVA Research

Results hardly vary when

the question refers solely to the sector in which the

company conducts its

activity...

... although they do vary

when the position of

the business is compared

with the sector in which it

operates ("social

desirability")

Section 5


0%

20%

40%

60%

80%

100%

Orderbook

Inventories Salesprices

Turnover Employment

Increase Stability Decrease

Perception of economic situation: 2H10 vs. 1H10 (% answers)Source: BBVA Research

Spanisheconomy

Sector Company

No change 33.1 32.3 27.4 29.1 57.0

BTS EAS BTS EAS EAS

Improved 0.6 2.1 0.6 4.0 7.8

Worsened 66.9 65.6 72.0 66.9 35.2


Page 41

Headline results• During the latter half of last year, the changes in financing conditions does not appear to have

significantly limited the performance of the companies included in the survey– Less than half the participants in the EAS tried to obtain external financing in 2H10, 88.5% of which were successful

• BBVA Finanzia managers agreed that a lack of demand drove the credit squeeze in 2H10 more than a lack of supply

Section 5


Companies that tried to obtain external financing in 2H10 (%)Source: BBVA Research

Problems procuring external financing in 2H10Source: BBVA Research

0

10

20

30

40

50

60

Motorcy. Retail of major appliances

and electronics & ICT equipment

Otherretailsales

Furniture Cars

0%

20%

40%

60%

80%

100%

Motorcy. Retail of major appliances

and electronics & ICT equipment

Otherretailsales

Furniture Cars

No problemsEncountered problems, but been able to procure financing

Been unable to procure financing


Page 42

Headline results• Improved expectations of companies and managers for 1H11 …

• ... underpinned by a favourable outlook for supply of credit (70.9% believe it will not decrease in 1H11, compared to 44.0% in 2H10)

– While most companies in the survey expect an improvement for 1H11, companies involved in motor vehicle distribution remained less optimistic than the average

• Most optimistic expectations: retail sales in non-specialist establishments, medical and orthopaedic product sales, and other lending activities

Section 5


Perception of economic situation: outlook for 1H11 (% responses)Source: BBVA Research

Spanish economy Sector Company

No change 49.1 44.8 54.3 46.6 60.3

BTS EAS BTS EAS EAS

Will improve 5.1 9.4 4.0 11.4 18.9

Will worsen 45.7 45.8 41.7 42.0 20.8


Page 43

Key themes• Divergences in the world economy (developed vs. emerging, central Europe vs. the

peripheral, financial economy vs. real economy) will influence economic policy responses

• Economic and institutional reforms in Europe will be key to resolving the financial crisis

• Spain’s economic growth will continue to be affected by weak domestic demand and the push from export demand

• The sovereign debt crisis confirms the importance of maintaining the reforming effort

• The increased pace of fiscal consolidation modified household spending patterns in 2010

• Given their increased sensitivity to fluctuations in price and income, consumption of durable goods was especially affected by the change in tone of fiscal policy

• The expected weakening in demand does not point to an increase in consumer credit in the short term

• BBVA surveys of economic activity and business trends: companies and managers see improved outlook for 1H11, bolstered by a favourable forecast for the credit supply


Page 44

Spain:Consumption OutlookBarcelona, 3 March 2011

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