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The Global Economic Outlook and the Spanish Economy

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Global economy: a more balanced contribution to growth between developed and emerging economies. Spain: the Spanish economy will bottom out in 2013. Growth will resume in 2014
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  • 1. The Global Economic Outlook and the Spanish Economy Rafael Domnech IADS FINANCIAL DIRECTORS MEETING Madrid, October, 3 and 4, 2013
  • 2. Global Economic Oulook October 2013 Section 1 Global economy: a more balanced contribution to growth between developed and emerging economies Section 2 Spain: the Spanish economy will bottom out in 2013. Growth will resume in 2014 Page 2
  • 3. Global Economic Oulook October 2013 The global economy is growing but below its potential 1 2 Global growth has slowed down slightly due to incoming adjustment in emerging economies Financial conditions have tightened in some countries as consequence of FED announcement on the QE exit strategy and the emerging economies adjustment World GDP growth (%) Source: BBVA Research 2.8 -0.4 5.1 4.0 3.3 3.1 3.8 -2 -1 0 1 2 3 4 5 6 2008 2009 2010 2011 2012 2013 (f) 2014 (f) Adv. Economies Emerging economies Baseline Aug-13 Baseline May-13 Page 3
  • 4. Global Economic Oulook October 2013 US: sustained recovery (albeit below potential), strength in private demand. A careful exit strategy by the Federal Reserve is a must (forward guidance) Emerging economies: resiliency and macroeconomic stability during a prolonged period of crisis in developed economies, but heterogeneity between countries EMU: recovery although with differences among countries. Fiscal targets delayed, advances towards the Banking Union and financial stress reduction Spain: improving outlook and international confidence, lower risk premium, current account surplus and macroeconomic stabilization Progress in the global economic situation Page 4
  • 5. Global Economic Oulook October 2013 with significant uncertainties Worldwide: risk of abrupt deceleration in some emerging countries and doubts on their ability to rebalance the economic pattern, effects on capital flows of the monetary normalization in the US and geopolitical risks in the Middle East. US: debt ceiling agreement, long term fiscal uncertainty and risks regarding the exit strategy of the Federal Reserve EMU: political uncertainties in Italy and Spain, new financial assistance to Greece and Portugal, AQR results of European banks, sovereign risk persistence and financial fragmentation Spain: uncertainty about the scope and intensity of structural reforms, potential growth, fiscal consolidation and completion of bank restructuring Page 5
  • 6. Spain Economic Outlook, September 2013 Page 6 BBVA financial tensions index Source: BBVA Research Eurozone: political gridlock in Italy; bail-out in Cyprus; Portugals Constitutional Court rejection of austerity measures USA: political deadlock over long-term fiscal policy China: deeper-than-expected slowdown and increasing risks of local public debt and shadow banking Developed markets remained resilient to risk events -0,50 0,00 0,50 1,00 1,50 2,00 2,50 3,00 ene-08 jul-08 ene-09 jul-09 ene-10 jul-10 ene-11 jul-11 ene-12 jul-12 ene-13 jul-13 USA EMU Lehman Brothers 1st bail out of Greece Risk of Euro break up Sovereign & banking contagion in the EZ
  • 7. Global Economic Oulook October 2013 EMU recovery is underway but behind the USA EMU: MICA BBVA and GDP growth, % QoQ Fuente: BBVA Research -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 Serie9 Serie3 Serie4 MICA-BBVA GDP observedCI 20% CI 40% CI 60% EMU: GDP growth forecast Source: BBVA Research Page 7 Country 2013 2014 Germany 0.5% 1.8% France -0.1% 1.1% Italy -1.8% 0.8% Spain -1.4% 0.9%
  • 8. Global Economic Oulook October 2013 The USA has recovered 2/3 of the fall in GDP per working-age population such that the current level of GDP per working-age population is slightly lower than in 2009 The sovereign debt crisis in EMU put an end to the recovery of 2010 and 1H2011 GDP per working-age population (2Q2008=100) Source: BBVA Research 88" 90" 92" 94" 96" 98" 100" 102" mar,00" mar,02" mar,04" mar,06" mar,08" mar,10" mar,12" EMU recovery is underway but behind the USA Page 8
  • 9. Global Economic Oulook October 2013 Net balance with the Eurosystem (EUR bn) Source: BBVA Research based on Bloomberg Interest rate of new loans to businesses (Up to one million un euros, more than 5 years) Source: ECB -500 -400 -300 -200 -100 0 100 200 300 400 500 600 700 800 900 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Germany Spain 2 3 4 5 6 7 8 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Euro Area Germany France Spain Italy and financial fragmentation is still high Page 9
  • 10. Global Economic Oulook October 2013 FEDs tapering expectations roiled markets Page 10 US: 10 y Treasury, yield (%) Source: Bloomberg Implicit policy rates in fed funds futures Source: Bloomberg and BBVA Research 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 Latest June 25th (one week after June FOMC meeting) BBVA forecast May 21st (one day before Bernakes congressional hearing) 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13
  • 11. Global Economic Oulook October 2013 impacting especially in emerging economies , which could impact growth prospects if persistent in time. Capital outflow from emerging countries, , due to idiosyncratic reasons, BBVAs Financial Stress Index Fuente: BBVA Research -0.30 0.00 0.30 0.60 0.90 1.20 1.50 1.80 -0.09 -0.06 -0.03 0.00 0.03 0.06 0.09 0.12 1-sep-10 22-dic-10 13-abr-11 3-ago-11 23-nov-11 14-mar-12 4-jul-12 24-oct-12 13-feb-13 5-jun-13 25-sep-13 Emerging Markets, left axis Developed Markets, right axis Page 11
  • 12. Global Economic Oulook October 2013 44 46 48 50 52 54 56 58 60 44 46 48 50 52 54 56 58 60 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 China Mexico Brazil India Transitory global slowdown due to emerging countries? Page 12 Emerging economies: PMIs manufacturing Source: Haver, BBVA Research Global GDP growth based on BBVA-GAIN (%,q/q) Source: BBVA Research 0,0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 Q3-12 Q4-12 Q1-13 Q2-13 (1-Aug) Q2-13 (1-Sept) Q3-13 (1-Aug) Q3-13 (1-Sept) Actual Estimates
  • 13. Global Economic Oulook October 2013 Global growth slows down slightly and resets across areas Economic growth (%) Source: BBVA Research, Haver Page 13 The global economy shows a cyclical downturn, especially in emerging countries, and faces a tightening of financial conditions Developed economies: the US and the Euro Area keep a slightly better outlook for 2014 Emerging economies, growth in BBVA Eagles remains, although somewhat lower due to downward revisions in China and Latam 3.3 3.1 3.8 2.8 1.8 2.3 -0.5 -0.4 1 5.1 5.2 5.6 -2.0 0.0 2.0 4.0 6.0 8.0 -2.0 0.0 2.0 4.0 6.0 8.0 12 13 14 12 13 14 12 13 14 12 13 14 World US Eurozone Eagles July-13 April-13
  • 14. Global Economic Oulook October 2013 Section 1 Global economy: a more balanced contribution to growth between developed and emerging economies Section 2 Spain: the economy is bottoming out in 2013 and growth will resume in 2014 Page 14
  • 15. Spain Economic Outlook, September 2013 Page 15 Spain: GDP growth and MICA-BBVA forecasts (% QoQ) Source: BBVA Research based on INE data A more protracted economic recession in Europe, financial fragmentation and the intensification of the fiscal consolidation ... ..., but trends in activity improved in 2Q13 and are pointing to slight growth in 2H13 ... were responsible for a higher-than-expected economic decline in 4Q12 and 1Q13... The Spanish economy is bottoming out in 2013 -1,5 -1,0 -0,5 0,0 0,5 -1,5 -1,0 -0,5 0,0 0,5 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 CI at 20% CI at 40% CI at 60% Data (MICA-BBVA Nowcast for 3Q13)
  • 16. Spain Economic Outlook, September 2013 Page 16 following previous business cycle stylised facts Exports growth Investment in machinery and equipment Gross operating surplus New credit operations (flow) Employment growth GDP growth Growth of the stock of credit Stabilized Stabilized Stabilizing Falling Leading . = . Lagging .
  • 17. Spain Economic Outlook, September 2013 Page 17 Exports growth: great performance compared to EMU In spite of the recession experienced within the EMU in the last year (50% of total Spanish exports), Spanish exports have grown The increase was partly a result of higher exports to countries in the BBVA-EAGLEs area and other developed economies, , but also of the higher competitiveness of Spanish exports, in terms of
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