DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
ANNUAL REPORT 2015
CHAPTER 1
OVERVIEW
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
THE WORLD ECONOMY IN 2015
2
Conditioning factors behind the lower global growth were the re-balancing of theChinese economy, the acceleration of the fall in oil prices and expectations ofmonetary normalisation in the United States.
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016
WORLD ADVANCED ECONOMIES
EMERGING ECONOMIES
y-o-y % IMF projections
GDP GROWTH AND IMF FORECASTS
2030405060708090
100110120
2012 2013 2014 2015 2016 2017 2018
BRENT OIL INDUSTRIAL METALS FOOD AGGREGATE FUTURES FOR END-2016 AND 2017
Jan 2012 = 100
COMMODITIES PRICES
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
THE MODEST RECOVERY IN THE EURO AREA
3
The build-up of downside risks to the price stability target and signs of the de-anchoring of inflation expectations led the ECB to extend its asset purchaseprogramme in early 2015 and to approve further stimulus measures in December2015 and March 2016.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
THE CONTINUATION OF THE SPANISH RECOVERY
4
In 2015 the pace of recovery stepped up, to a rate (3.2%) appreciably higher thanthat recorded by Spain's European partners.
-8
-6
-4
-2
0
2
4
6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
GROSS DOMESTIC PRODUCT
%
-10
-8
-6
-4
-2
0
2
4
6
2007 2008 2009 2010 2011 2012 2013 2014 2015
NATIONAL DEMAND EXTERNAL DEMAND GDP (ANNUAL RATE OF CHANGE) (%)
GDP, NATIONAL DEMAND AND EXTERNAL DEMAND
pp
-3-2-10123
2007 2008 2009 2010 2011 SPAIN EURO AREA
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH 5
Household expenditure and business investment were markedly dynamic in 2015;the contribution of external demand to growth was negative; and governmentconsumption and public investment moved on an expansionary course.
Employment grew forcefully across practically all sectors, and the pace of declineof the unemployment rate increased.
THE CONTINUATION OF THE SPANISH RECOVERY
-10
-8
-6
-4
-2
0
2
4
6
2007 2008 2009 2010 2011 2012 2013 2014 2015
OTHER DEMAND COMPONENTS GOVERNMENT CONSUMPTION AND PUBLIC INVESTMENT
PRIVATE CONSUMPTION NATIONAL DEMAND (ANNUAL RATE OF CHANGE) (%)
NATIONAL DEMAND AND COMPONENTSpp
0
5
10
15
20
25
30
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
%
UNEMPLOYMENT RATE
-3-2-10123
200720082009201020112012201320142015 SPAIN EURO AREA
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
DETERMINANTS OF GROWTH IN 2015
6
Growth continued to be underpinned by structural factors, linked to improvedcompetitiveness, the progressive restoring of macrofinancial equilibria and theeasing in financing conditions for households and firms...
The policies and reforms applied both domestically and at the European level havecontributed to correcting the imbalances that built up.
90
95
100
105
110
115
120
2000 2002 2004 2006 2008 2010 2012 2014
ULCs COMPENSATION PER EMPLOYEE PRODUCTIVITY PER EMPLOYEE
UNIT LABOUR COSTS IN SPAIN RELATIVE TO THE EURO AREA
2000 = 100
0
1
2
3
4
5
6
7%
INTEREST RATES ON LOANS < €1 MILLION
a The euro area core comprises the following countries: Germany, Austria, France, Netherlands, Finland and Luxembourg.
01234567 SPAIN CORE EURO AREA (a)
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
THE RELEVANCE OF TEMPORARY FACTORS
7
… and other temporary factors also contributed, including most notably the fall inoil prices, the depreciation of the euro and demand-side (monetary and fiscal)policies.
The lesser contribution of the temporary factors that have boosted activitysuggests more moderate growth in the short and medium term.
EFFECT OF THE CHANGE IN THE EXOGENOUS ASSUMPTIONS SINCE MID-2014 ON GDP GROWTH AND INFLATION FOR 2015
GDP Inflation
Monetary policy 0.6 0.6
Fiscal policy 0.5 0.2
Global demand -0.6 -0.1
Oil and other commodities prices 0.6 -2.3
TOTAL 1.1 -1.6
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
CHALLENGES OUTSTANDING: REDUCING UNEMPLOYMENT
8
The challenges in the labour market are associated with the persistence of highunemployment rates, the scant link between wages and firms' specific conditionsand the high temporary employment ratio.
These challenges require measures to provide for a closer alignment of firms'conditions with their specific situation, to boost the attractiveness of permanenthiring and to improve active policies.
UNEMPLOYMENT, LONG-TERM UNEMPLOYMENT AND VERY LONG-TERM UNEMPLOYMENT
Unemploymentrate
Incidence oflong-term
unemployment
Incidence of verylong-term
unemployment
2006 8.5 25.7 13.0
2007 8.2 23.8 12.3
2008 11.3 21.5 9.9
2009 17.9 28.6 10.5
2010 19.9 42.6 17.0
2011 21.4 48.2 24.7
2012 24.8 52.4 29.9
2013 26.1 58.5 36.1
2014 24.4 61.8 42.5
2015 22.1 60.9 44.2
10
15
20
25
30
35
02 03 04 05 06 07 08 09 10 11 12 13 14 15
SPAIN: TEMPORARY EMPLOYMENT RATIO EURO AREA: TEMPORARY EMPLOYMENT RATIO
%
TEMPORARY EMPLOYMENT RATIO (a)
a Temporary employees as a proportion of total employees, calculated with Q2 data for each year.
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
CHALLENGES OUTSTANDING: FISCAL CONSOLIDATION
9
In 2015 there was a deterioration in the structural deficit and significant slippageby the budget deficit from the target set by the European authorities.
A detailed medium-term consolidation programme, the strict application of theBudgetary Stability Law, a composition of public finances more conducive togrowth and a response to the challenges posed by population ageing are allrequired.
-12
-10
-8
-6
-4
-2
0
2
4
2007 2008 2009 2010 2011 2012 2013 2014 2015
BALANCE - EURO AREA BALANCE - SPAIN
STRUCTURAL BALANCE - EURO AREA STRUCTURAL BALANCE - SPAIN
% of GDP
BALANCE AND STRUCTURAL BALANCE
50
60
70
80
90
100
110
2010 2011 2012 2013 2014 2015
EURO AREA SPAIN
EDP DEBT
% of GDP
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
CHALLENGES OUTSTANDING: PRIVATE-SECTOR DELEVERAGING
10
Households' and firms' debt ratio continued to decline in 2015; but the declinewas nevertheless compatible with a pick-up in the flow of new financingtransactions.
The decline in the aggregate balance of lending to firms has been accompanied bya significant inter-sectoral and intra-sectoral reallocation.
50
55
60
65
70
75
80
85
90
2008 2009 2010 2011 2012 2013 2014 2015
SPAIN EURO AREA
% of GDP
DEBT RATIO. HOUSEHOLDS
70
80
90
100
110
120
130
2008 2009 2010 2011 2012 2013 2014 2015
SPAIN EURO AREA
% of GDP
DEBT RATIO. NON-FINANCIAL CORPORATIONS
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
CHALLENGES OUTSTANDING: THE CORRECTION OF THE EXTERNAL DEBT POSITION
11
There has been a structural improvement in the trade balance and a pick-up innational saving, but the net debtor position vis-à-vis the external sector remains atvery high levels.
-8
-6
-4
-2
0
2
4
6
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
ACTUAL BALANCE OF GOODS AND SERVICES CYCLICALLY ADJUSTED BALANCE OF GOODS AND SERVICES (a)
% of GDP
BALANCE OF GOODS AND SERVICES2010 constant prices
a Trade balance had both the Spanish economy and its main trading partners grown at asimilar rate to the potential GDP rate.
0
30
60
90
120
150
180
-120
-100
-80
-60
-40
-20
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
NET IIP EXCL. BE TOTAL NET IIP GROSS EXTERNAL DEBT (right-hand scale)
NET INTERNATIONAL INVESTMENT POSITION (IIP) AND GROSS EXTERNAL DEBT POSITION
% of GDP % of GDP
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
CHALLENGES OUTSTANDING: IMPROVINGPRODUCTIVITY
12
Increasing productivity is crucial for improving growth prospects, especiallyagainst a background of population ageing. However, productivity growth in theSpanish economy is holding at a significantly lower rate than that of otherdeveloped countries.
To improve the dynamism of productivity calls for a reform of the regulation ofcertain sectors, the boosting of human and technological capital, enhancedinstitutional quality and a revision of the rules hampering business start-ups andgrowth.
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15
SPAIN GERMANY UNITED STATES
TOTAL FACTOR PRODUCTIVITY GROWTH
%
POTENTIAL GROWTH AND CONTRIBUTIONS
2001-2007
2008-2014
2015-2025
Potential growth 3.04 0.60 1.0
Contributions
Employment 1.60 -0.20 0.0
Hours per employee -0.20 -0.10 -0.1
Employees 1.80 -0.10 0.1
Population aged 15-64 1.00 0.00 -0.3
Participation rate 0.90 0.30 0.1
NAIRU-PC -0.10 -0.40 0.3
Capital 1.57 0.60 0.4
TFP -0.14 0.20 0.6
DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH
CHALLENGES OUTSTANDING: PROGRESS IN THE CONSTRUCTION OF EMU
13
In the short term, greater economic policy coordination is called for.
• The creation of an independent European Fiscal Council, and the promotion of
competitiveness councils.
• To complete the Banking Union and thereby ensure a level playing field for banking
systems.
• To complete financial integration with the Capital Markets Union.
In the medium term, the institutional architecture is still to be completed.
• Creation of a Fiscal Union promoting macroeconomic stabilisation in the euro area.
• Structural convergence in areas such as labour markets and fiscal systems.