European and Spanish Economic Outlook
Jorge Sicilia Chief Economist, BBVA Group March 2014
European and Spanish Economic Outlook, March 2014
Main messages
1
2
3
The global economic cycle is improving and we expect a moderate acceleration in growth in 2014-15, supported by growth in developed economies
Some economic policy uncertainties have been resolved but there are still risks, although not of a systemic nature, as was the case in the past
The slow recovery in the eurozone continues, thanks to favourable economic policies and an improvement in the financial environment. The comprehensive review should eventually help to reduce financial fragmentation
For the first time since the beginning of the crisis, the bias to our forecasts for the Spanish economy is to the upside. The recovery is being driven by exports, import substitution and the recovery in new lending
The scope of the reforms needs to be expanded, if they are to underpin a robust and sustained recovery and, within a reasonable period, replace the jobs destroyed
4
5
Page 2
European and Spanish Economic Outlook, March 2014
Index Section 1
Global economy: a gradual acceleration supported by growth in developed economies Section 2
Europe: the slow recovery continues, the risk of deflation is very low, but… Section 3
Spain: upside risks for the first time since the beginning of the crisis
Section 4
Spain: commitment to the reform process is crucial to consolidate “recent” market improvement and increase potential growth
Page 3
European and Spanish Economic Outlook, March 2014
Main messages Global GDP growth (%) Source: BBVA Research
The global expansion will continue in 2014-15, but this time around with higher contributions from
advanced economies
Growth risks are more balanced, with an upward bias in the US
However, downside risks remain: the exit from QE and flows to emerging markets,
the uneven recoveries and vulnerabilities in EM, and, still, the eurozone
2.8
-0.4
5.2
4.0
3.23.0
3.6
3.9
-2
-1
0
1
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3
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6
2008 2009 2010 2011 2012 2013 (e) 2014 (f) 2015 (f)
Adv. Economies Emerging economies
Baseline Jan14 Baseline Oct-13
Page 4
European and Spanish Economic Outlook, March 2014
The global momentum is improving Manufacturing PMIs Source: BBVA Research based on Markit Economics
BBVA Financial Stress Index Source: BBVA Research
BBVA GAIN Source: BBVA Research
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52
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56
58
60
Oct
10
Mar
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Aug 1
1
Jan
12
Jun 1
2
No
v 1
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Apr
13
Sep
13
Feb 1
4
Global
Advanced economies
BBVA Eagles
-0.5
-0.1
0.3
0.7
1.1
-0.12
-0.08
-0.04
0.00
0.04
Mar
-12
Jul-1
2
Nov-1
2
Mar
-13
Jul-1
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Nov-1
3
Mar
-14
Emerging Markets, left axis
Developed Markets, right axis
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0.4
0.6
0.8
1.0
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3 m
onth
s ago
Curr
ent
3 m
onth
s ago
Curr
ent
Q1-13 Q2-13 Q3-13 Q4-13 Q1-14
Actual Estimates
Page 5
European and Spanish Economic Outlook, March 2014
Fed’s forward guidance and ECB’s room for manoeuvre should anchor the global financial scenario
The tightening of liquidity conditions is impacting on EM; anyway, differentiation remains
US: the sustained recovery and the fiscal agreement provide upward bias to our scenario for the US (between 2.5% and 3.0%)
The eurozone: positive growth with an increasing contribution from domestic demand
China: growth momentum is supported by recent stimulus measures and improving external demand
The global economic cycle is improving
Page 6
European and Spanish Economic Outlook, March 2014
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
Jan-1
2
Feb-1
2
Mar
-12
Apr-
12
May
-12
Jun-1
2
Jul-1
2
Aug-1
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Sep-1
2
Oct
-12
Nov-
12
Dec
-12
Jan-1
3
Feb-1
3
Mar
-13
Apr-
13
May
-13
Jun-1
3
Jul-1
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Aug-1
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Sep-1
3
Oct
-13
Nov-
13
Dec
-13
Jan-1
4
Feb-1
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Mar
-14
Developed
EM
Tapering talks
The portfolio re-balancing away from EM to DM, triggered by Fed tapering but reinforced by idiosyncratic risks Capital flows to Emerging and Developed Markets (Cumulative since 2012, as % of AUM) Source: BBVA Research, IMF and EPFR
Tapering + Idiosyncratic factors
Politics and/or policy mismanagement also played a role: doubts on Brazil and China, and
idiosyncratic factors in Argentina and Turkey
Despite sound fundamentals across EM, investors remain alert with respect to those countries more
reliant on capital flows
Differentiation between EMs is playing a role
Page 7
European and Spanish Economic Outlook, March 2014
Risk measure: EM and European periphery EMBI and European periphery bond spread vs. Germany Source: Bloomberg and BBVA Research
The re-balancing of portfolios is benefiting the European periphery
Relative risk perception of European periphery (vs. EM) is decreasing
Growth perspective is also improving across Europe, particularly in some periphery countries
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0.5
1.0
1.5
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Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14
10Y US BOND (lhs) EM FX index (rhs)
FedTapering
ECB OMT& FedQE3
European debt cris (ECB SMP)EM slowdonUS downgrade
Page 8
European and Spanish Economic Outlook, March 2014
Portfolio flows show a strong preference for peripheral Europe, mainly supported by institutional investors Country flows into European markets (Accumulated country flows as a %AUM) Source BBVA Research through EPFR data
Country flows into peripheral Europe by type of investor (Accumulated country flows as a %AUM) Source BBVA Research through EPFR data
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0,00
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Total Europe Core Total Peripheral Europe
-5,00
0,00
5,00
10,00
15,00
20,00
25,00
30,00
35,00
Retail Total Institutional Total
Page 9
European and Spanish Economic Outlook, March 2014
Interconnected risk events with the potential to impact on global growth
(*) Heterogeneous developments among countries
QE exit and disruptive effects of portfolio re-balancing
Adjustment in China and other EM (*) The eurozone
Switching from banking union towards strong disinflation (and deflation risks)
Page 10
European and Spanish Economic Outlook, March 2014
Index Section 1
Global economy: a gradual acceleration supported by growth in developed economies
Section 2
Europe: the slow recovery continues, the risk of deflation is very low, but… Section 3
Spain: upside risks for the first time since the beginning of the crisis
Section 4
Spain: commitment to the reform process is crucial to consolidate “recent” market improvement and increase potential growth
Page 11
European and Spanish Economic Outlook, March 2014
EMU: annual contribution to GDP growth (pp) Source: Eurostat and BBVA Research
Gradual recovery with domestic demand playing an increasing role
-10
-8
-6
-4
-2
0
2
4
6
2008 2009 2010 2011 2012 2013 2014 2015
Domestic Demand Exports Imports Net exports GDP
Exports will remain as the main driver of growth in both 2013 and 2014
Domestic demand has weighed on growth in 2013...
... but will contribute to the recovery in 2014
Page 12
European and Spanish Economic Outlook, March 2014
GDP growth by country (%) Source: BBVA Research
-0,4
1,1
1,9
0,5
1,8 2,0
0,2
1,1
1,6
-1,8
0,8
1,5
-1,2
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-2,5
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-1,5
-1,0
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2013
2014
2015
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2014
2015
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2013
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2015
EMU Germany France Italy Spain
Current Forecast (February 14) Previous Forecast (November 13)
Widespread mild recovery across countries
Germany: slight upward revision. Mild recovery on track, supported by domestic fundamentals
France: despite upward revision, GDP is set to remain virtually flat in 2013, while any moderate
recovery in 2014 will be dependent on the implementation of economic policy
Italy: unchanged forecast. Though activity is likely to have stabilised over 2H13, sharp downward in 2013. Slight growth in 2014, but downside risks
increase
Page 13
European and Spanish Economic Outlook, March 2014
The fiscal stance is less restrictive EMU: Fiscal consolidation by country (pp of GDP) Source: BBVA Research
0.0
0.5
1.0
1.5
2.0
2.5
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3.5
4.0
4.5
France Italy Spain Portugal
Fiscal Consolidation 2013 Revised Fiscal Consolidation 2014 Revised
Fiscal Consolidation 2013 Previous Fiscal Consolidation 2014 Previous
The European Commission revised deficit targets in May 2013, implying slower austerity
Apart from this direct effect, some countries are more relaxed about meeting their fiscal targets
Less austerity is probably also having an impact on confidence
Page 14
European and Spanish Economic Outlook, March 2014
EZ: HICP inflation (% y/y) Source: Eurostat and BBVA Research
-1.0
-0.5
0.0
0.5
1.0
1.5
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2.5
3.0
3.5
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Mar
-09
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Mar
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Jun-1
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Dec-
14
20% 40% 60% 80%
Eurozone. GDP and prices Source: Eurostat and BBVA Research
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-2.0
-1.0
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Jan-9
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Oct
-96
Jul-9
7
Apr-
98
Jan-9
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Oct
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Jul-0
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Apr-
01
Jan-0
2
Oct
-02
Jul-0
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Apr-
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Jul-0
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Apr-
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Jan-0
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Oct
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Jul-0
9
Apr-
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Jan-1
1
Oct
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Jul-1
2
Apr-
13
Jan-1
4
Oct
-14
GDP (% y/y, LHS) GDP (t-2, % y/y, LHS) HICP (% y/y, RHS)
In a “normal” world, inflation should stabilise first and then pick up in late 2014
Page 15
European and Spanish Economic Outlook, March 2014
• Fewer than 10% of HICP items at negative inflation rates over three consecutive months, declining to 5% over six consecutive months
• The trimmed mean inflation statistic suggests that, on average, inflation will remain relatively stable at slightly above 1% YoY over the next 2 1/2 years
EZ: proxy of deflation (% CPI items with persistent negative m/m swda rates) Source BBVA Research
EZ: measures of trend inflation Source BBVA Research
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Europe (Trimmed means) Europe (core CPI)
Is this price stability?
Still far from outright deflation
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Jan-9
9Ju
l-99
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Jan-1
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Jan-1
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Jan-1
3Ju
l-13
Jan-1
43 consecutive months 6 consecutive months
9 consecutive months 12 consecutive months
Page 16
European and Spanish Economic Outlook, March 2014
The probability of deflation increases under more extreme situations EZ: Distribution of probability of inflation (average 2014) Source BBVA Research
Baseline scenario
Inflation Prob. of deflation
Monetary restriction (M3 growth = 0.9%)
1% 7.5%
0,8% 14%
Monetary restriction + shock (M3 growth = 0.9%; growth <-1)
0,8% 14%
Unanchored expectations (M3 growth = 0.9%; growth <-1)
0,28% 47% 0.0
0.1
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0.4
0.5
0.6
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-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0
Base scenario
Monetary-restriction scenario
Monetary restriction + negativeGDP shock
All the previous and unanchored inflation expectations
Page 17
European and Spanish Economic Outlook, March 2014
Eurozone goes from one constraint (financial fragmentation) to another (low inflation and
difficult debt adjustment)
Uneven adjustment across countries: under a deflationary scenario, the debt burden
increases
Asymmetry
Inflation expectations in the medium term are well below 2% (1.5% in 2016)
The median contribution of inflation to the reduction in debt to disposable income (ratio) was almost 70%
in episodes associated with a banking crisis
Against this background, tensions could (re)emerge
Page 18
European and Spanish Economic Outlook, March 2014
Will the ECB change its mind
towards QE?
• Rates were kept unchanged. They retain a downward bias
• Mr. Draghi once again used verbal intervention to strengthen his forward guidance
• Inflation significantly below 2% for a long period of time (1.5% for 2016)
• Mr. Draghi seemed to downplay the potential role of other instruments available for eventual further policy action
ECB: No action taken (and none foreseen)
Latest What do we expect? Policy pause until 2016
Once it has become clear that the ECB is ready to accept inflation of 1.5% in 2016 without taking further action, the expectation of further (decisive) measures in the short-term in the absence of sizeable shocks is very low Any and all liquidity measures remain on the table (SMP non-sterilisation) in the event of an unwarranted tightening in money markets
Do not expect a weakening of the euro
Page 19
European and Spanish Economic Outlook, March 2014
March, SRM agreement
March, ECB AQR methodology
End of the year, SSM SSM/AQR results (possibly before Nov. 2014)
April, EBA stress test methodology
April, Last EU Parliamentary session. Tight deadline to endorse SRM & BBRD (April)
End of the year: Tentative deadline for IGA national ratifications (80% threshold),
Progress on Banking Union
Eurozone: event calendar and pending issues
Elections May, European elections
OMT Pending on ECJ decision
Peripheral countries
Portugal: exiting the programme or asking for another programme? (April)
Greece: additional package (Summer)
Italy: uncertainty over the new government
Spain: further fiscal adjustments needed, while facing increasing political uncertainty
Page 20
European and Spanish Economic Outlook, March 2014
• ECB as the ultimately responsible regulatory authority for all eurozone banks
• Direct supervisor of top 130 banks
• National authorities will supervise the less significant entities
• Start: 04/11/2014
• Prudential (Basel III), resolution framework (bail-in), harmonised deposit protection rules
• Start: 2014 - 2016
• Start: unknown
• New Single Resolution Authority in co-operation with national resolution authorities
• Single Resolution Fund funded by bank contributions
• Start: 2015 - 2016
Common Rules
Single Supervision
Single Resolution
Single Depo Guarantee Scheme
Pillar I
Pillar II Pillar III
Pillar IV Setting up a robust supranational framework ?
Banking union is progressing and will be a key factor in 2014
Page 21
European and Spanish Economic Outlook, March 2014
BU is a milestone in European history. The highest transfer of sovereignty since the euro
Banking union is a necessary condition but is not sufficient on its own. We also need fiscal and political union
Single Supervision
Single Rulebook
Single Resolution
Backstops
Single supervisory criteria will stop regulatory ring-fencing practices
Common rules are developed from a preventive perspective
A centralised resolution authority will apply the same criteria for resolution actions
The bail-in and the Resolution Fund will reduce the reliance on sovereign. Still uncertainty on the
common backstop
The banking union is a true game changer, and it is advancing
Page 22
European and Spanish Economic Outlook, March 2014
Progress on banking union: the ECB (SSM) has announced the main features of its comprehensive assessment
Valuation
Supervisory Risk Assessment to review key risks, including liquidity, leverage
and funding
Asset Quality Review (AQR) to analyse the quality of banks’ assets, collateral valuation and provisions
Stress Test to examine the resilience of banks’ balance sheets to stress scenarios
In principle, details point to a balanced exercise with a sufficiently wide scope
However, some issues require further clarification: bail-in, stress test methodology (April 2014), publication of data to replicate the exercise…
Transparency is pivotal to eliminating all concerns over the solvency of the European
banking sector
Composed of 3 pillars
• The exercise should be strict enough to dispel any doubts on the resilience of the balance sheets
• Particular attention should be paid to the AQR. Is it happening? Up to a point, but it is a good start
Page 23
European and Spanish Economic Outlook, March 2014
Single Supervision needs Single Resolution
Single Supervision Single Resolution
IDENTIFY LEGACY PROBLEM (2014)
AQR + Stress Test
SOLVE THE LECAGY PROBLEM (2014-15)
• Private/partial bail-in (if state aid)
• Public national/ESM/direct recap?
FULLY OPERATIVE SRM (2016)
• Single authority • Bail-in • Single Fund • Common backstop?
When the ECB identifies problems in a particular entity, the Single Resolution Fund will act as a private backstop after a minimum bail-in
Page 24
European and Spanish Economic Outlook, March 2014
Banking union is expected to reduce fragmentation Composite measure of EZ financial fragmentation* Source: BBVA Research and Bloomberg
-2,0
-1,0
0,0
1,0
2,0
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4,0
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6,0
Jan-
08
Jul-0
8
Jan-
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Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
!
Break the ‘doom loop’ between sovereigns and
banks
Strengthen the monetary union by reinforcing the institutional architecture
Restore the monetary policy transmission channel
Page 25
European and Spanish Economic Outlook, March 2014
Index Section 1
Global economy: a gradual acceleration supported by growth in developed economies
Section 2
Europe: the slow recovery continues, the risk of deflation is very low, but… Section 3
Spain: upside risks for the first time since the beginning of the crisis Section 4
Spain: commitment to the reform process is crucial to consolidate “recent” market development and increase potential growth
Page 26
European and Spanish Economic Outlook, March 2014
The Spanish economy’s recovery is confirmed … Spain: GDP growth and MICA-BBVA forecasts (% QoQ) Source: BBVA Research based on INE
After three years in recession, domestic demand started to make a positive contribution to growth
again in the second half of 2013…
… as a consequence of improved fundamentals, less restrictive fiscal policy, reduced uncertainty
and increased import substitution
The available information points to growth of at least 0.4% in 1Q14
-1.5
-1.0
-0.5
0.0
0.5
1.0
-1.5
-1.0
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0.0
0.5
1.0
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
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2Q
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3Q
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3Q
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4Q
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1Q
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2Q
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3Q
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4Q
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1Q
14
(f)
CI at 60%CI at 40%CI at 20%Data (f: MICA-BBVA Research forecast)
Page 27
European and Spanish Economic Outlook, March 2014
… and, in spite of the uncertainty regarding the deficit in 2013 …
The significant fiscal consolidation efforts in 2012 and 2013 …
… have resulted in containment of the public deficit at around 7.0% of GDP
The wider the deviation from the target deficit for 2013, the greater the effort that will have to be
made in 2014
9.1
3.0
5.2
6.8
1.8 1.6
6,7
-0.3 0.9
5.8
-0.7
0.0
5.1
0
2
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8
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12
14
Defici
t2
01
1
Pass
ive f
isca
l polic
y
Fis
cal eff
ort
Defici
t 2
01
2
Pass
ive f
isca
l polic
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Fis
cal eff
ort
Defici
t 2
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Pass
ive f
isca
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Fis
cal eff
ort
Defici
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4
Pass
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isca
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Fis
cal eff
ort
Defici
t 2
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5
2012 2013 (e ) 2014 (f) 2015 (f)
(*) Without factoring in aid to financial institutions (e) estimate; (f) forecast
General government: expected fiscal tightening* (% GDP) Source: BBVA Research based on INE
Page 28
European and Spanish Economic Outlook, March 2014
… the risks are to the upside for the first time … Spain: GDP growth forecasts, 2014 (% YoY) Source: BBVA Research based on Consensus Forecast Inc.
Economic policy decisions have eliminated the risk scenarios
The differential performance of the Spanish economy confirms this improvement in the trends
If these trends are confirmed, growth could be even stronger than we are forecasting
0
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40
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50
(< -1,2) (-1,2;-0,8) (-0,8;-0,4) (-0,4;0) (0;0,4) (0,4;0,8) (0,8;1,2) (>1,2)
Rel
ativ
e fr
equen
cy
GDP Growth forecast
July-2013 (mean: 0,2%) Feb-2013 (mean:0,3%)
Jan-2014 (mean: 0.7%)
BBVA Research (Jan-14)
Page 29
European and Spanish Economic Outlook, March 2014
... as economic recovery has been in line with the stylised facts from previous cycles,…
Export growth
Investment in machinery and equipment
Gross operating surplus
New credit operations (flow)
Employment growth
GDP growth
Growth in stock of credit Declining
Variables that precede the cycle
.
= .
Lagging variables
Page 30
European and Spanish Economic Outlook, March 2014
..., and this time without a currency depreciation, so competitiveness gains are not merely temporary
Spain: Export growth, exchange rate movement and ULC (% change over the next 14 quarters after exports reached lowest level) Source: BBVA Research based on Consensus Forecast Inc.
-20
-10
0
10
20
30
40
50
1994 2009
Total Export Growth
Currency depreciation (-) / appreciation (+) vs. dollar
REER based on ULC
Page 31
European and Spanish Economic Outlook, March 2014
Spanish exports have grown in the last year despite the recession
in the EU
This is partly due to an increase in the share of exports to BBVA-EAGLEs countries and other
developed economies...
... but also to gains in Spanish competitiveness in both price and quality
Total exports (annual cumulative change 1Q12-3Q13 in %, seasonally adjusted) Source: BBVA Research based on INE data
(*): Data until 2Q13
Upside risks: 1. Exports will continue to expand
Page 32
-5% 0% 5% 10% 15%
Norway
Sweden
Finland
France
Ireland*
United Kingdom
Italy
Denmark
Germany
Belgium
European Union
Euro area
Austria
Switzerland
Netherlands
Portugal
Spain
European and Spanish Economic Outlook, March 2014
Upside risks: 1. Exports will continue to expand Spain: growth and breakdown of goods exports by broad geographical area Source: BBVA Research based on Datacomex
We expect the recovery to continue to be driven by the increase in exports
The deceleration in exports is a temporary phenomenon, and will reverse in a scenario of
stronger global growth
The slowing momentum in EMs has been offset by the recovery in the EMU
0
10
20
30
40
50
60
-24
-18
-12
-6
0
6
12
EMU EAGLEs
Nominal growth, 1Q13 average % YoY (LHS)
Nominal growth, 4Q13 average % YoY (LHS)
Share over total exports in 2013 (%, RHS)
Page 33
European and Spanish Economic Outlook, March 2014
Upside risks: 1. Exports will continue to expand Spain: growth and breakdown of goods exports by geographical area in 2013 Source: BBVA Research based on Datacomex
European destinations still account for a large share of goods exports
However, destinations outside Europe and North America have grown strongly …
… representing 34.5% of total exports in 2013 0
6
12
18
24
30
36
42
48
54
-5
0
5
10
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25
30
35
40
EM
U
Rest
of
worl
d
EU
(excl
. EM
U)
EA
GLEs
Nort
h A
meri
ca
Oce
ania
Export growth by main geographical area in 2013, goods % YoY nominal (LHS)
Composition of goods exports by destination in 2013, % of total (RHS)
Page 34
European and Spanish Economic Outlook, March 2014
Upside risks: 1. Exports will continue to expand Spain: export growth and composition by product category, volume (YoY, %) Source: BBVA Research based on Datacomex
Likewise, a large proportion of product categories (73%) experienced positive export growth in 2013
About 50% of the export basket expanded at a rate above 5% YoY in real terms
Some key sectors for the Spanish economy, e.g. motor vehicles, chemicals and machinery &
equipment, are growing at a very healthy pace
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Synth
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Do
mest
ic a
pp
liances
Made-u
p t
extile
s, e
xc.
appare
l
Oth
er
wo
oden p
rod
ucts
Pers
onal care
Pest
icid
es
and a
gro
chem
ical
s
Liv
est
ock
pro
du
cts
Sta
rch p
rodu
cts
Oth
er
machin
ery a
nd m
ech
.…
Furn
iture
Knit
ted f
abri
cs
Pain
ts
Musi
cal in
stru
men
ts
Textile
s
Oth
er
textile
art
icle
s
Pla
stics
Textile
yarn
s
Pro
du
cts fro
m r
efin
ed o
il
Export growth in 2013, % YoY volumes (LHS)
Composition of exports by product category in 2013, % of total (RHS)
118%
Page 35
European and Spanish Economic Outlook, March 2014
Upside risks: 1. Exports will continue to expand Regions: average annual growth in exports of goods due to diversification (2009-2012) (%, Spain: weighted average) Source: BBVA Research Export growth is based on improvements in
competitiveness and, above all, on diversification
On average, 75% of the growth in exports during the crisis was due to product and geographical
diversification
This export diversification prevented even greater negative GDP growth
-5
0
5
10
15
20
GA
L
C&
L
BA
L
ARA
EX
T
RIO
SPA
NA
V
VA
L
CLM BC
CA
T
MA
D
CA
NT
AST
AN
D
MU
R
CA
N
Diversification by destination Product diversification Combined effect
Page 36
European and Spanish Economic Outlook, March 2014
For the first time in two decades, price competitiveness gains have been recorded in the
prices of domestic products against imports...
.... and they have been reinforced by a relative demand for imports that is more elastic to the
relative price
It is estimated that these processes explain 42% of the fall in imports
Spain: imports of goods and services and change in relative prices (%, 1Q08-3Q13) Source: BBVA Research based on Eurostat
GER EST
IRL
ESP
FRA
ITA
CYP
LUX
MLT
HOL
AUS
POR
SLV
SLQ
-20
-15
-10
-5
0
5
10
15
20
-10 -5 0 5 10 15
Gro
wth
rate
of
impo
rts
(1
Q0
8 -
3Q
13
)
Relative price of imports. Growth rate
Upside risks: 1. Import substitution will continue
GER EST
IRL
ESP
FRA
ITA
CYP
LUX
MLT
HOL
AUSPOR
SLV
SLQ
-20
-15
-10
-5
0
5
10
15
20
-10 -5 0 5 10 15
Gro
wth
rat
e of im
port
s (1
Q0
8 -
3Q
13
)
Relative price of imports. Growth rate
Page 37
European and Spanish Economic Outlook, March 2014
Upside risks 2. Net savings by firms have improved
The maintenance of savings in the private sector and the reduction of investment...
... which has improved the position of companies to increase investment once a less uncertain
environment is consolidated
… have facilitated a deleveraging process with the rest of the world over the last five years...
Spain: net foreign borrowing (-) / lending (+) needs (% of GDP) Source: BBVA Research, based on INE data
-15%
-10%
-5%
0%
5%
10%
2007 2013 (f)
Public sector Financial and non-financial companies Households Total
Page 38
European and Spanish Economic Outlook, March 2014
Spain: Rating by agencies and BBVA Research models Source: BBVA Research
Upside risks 2. More certainty and fewer financial tensions
Improved international perceptions of the Spanish economy have enabled Spain to reduce its
dependence on ECB funding
Reduced financial tensions are reflected in the economy with a lag of 6-9 months
A permanent 100bp drop in sovereign interest rates implies up to one percentage point more
growth for the economy
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Rating Agencies BBVA Models Average
AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC
Page 39
European and Spanish Economic Outlook, March 2014
Upside risks 3. More dynamic investment Spain: exports and investment in equipment and machinery (2008=100) Source: BBVA Research based on INE
The recovery we expect in the EMU and the continuing export growth …
… should translate into an increase in private-sector investment
In fact, investment in equipment and machinery had grown 6.3% by 4Q13
60
70
80
90
100
110
120
130
140
dic
-99
sep
-00
jun-0
1
mar
-02
dic
-02
sep
-03
jun-0
4
mar
-05
dic
-05
sep
-06
jun-0
7
mar
-08
dic
-08
sep
-09
jun-1
0
mar
-11
dic
-11
sep
-12
jun-1
3
mar
-14
dic
-14
sep
-15
Goods and services exports
Investment in equipment and machinery
60
70
80
90
100
110
120
130
140
dic
-99
sep-0
0ju
n-0
1m
ar-
02
dic
-02
sep-0
3ju
n-0
4m
ar-
05
dic
-05
sep-0
6ju
n-0
7m
ar-
08
dic
-08
sep-0
9ju
n-1
0m
ar-
11
dic
-11
sep-1
2ju
n-1
3m
ar-
14
dic
-14
sep-1
5
Goods and services exports
Investment in equipment and machinery
Page 40
European and Spanish Economic Outlook, March 2014
Average evolution of consumption + investment and credit stock (C+I=100 at the trough, average of crises in Finland, Japan, Norway, Spain and Sweden) Source: Biggs et al (2009)
94
96
98
100
102
104
106
108
110
112
98
100
102
104
106
108
110
112
t-3
t-2
t-1 t
t+1
t+2
t+3
Consumption + Investment (left) Credit Stock (right)
-10
-8
-6
-4
-2
0
2
4
6
98
100
102
104
106
108
110
112
t-3
t-2
t-1 t
t+1
t+2
t+3
Consumption + Investment (left) Credit Flow (right)
Average evolution of consumption + investment and credit flow (C+I=100 at the trough, average of crises in Finland, Japan, Norway, Spain and Sweden) Source: Biggs et al (2009)
Upside risks 4. Improvement in new lending flows
Page 41
European and Spanish Economic Outlook, March 2014
Private-sector: new loans and repayments (Quarterly figures, EUR mn) Source: Bank of Spain and BBVA Research
100000
150000
200000
250000
300000
350000
Mar-
03
Mar-
04
Mar-
05
Mar-
06
Mar-
07
Mar-
08
Mar-
09
Mar-
10
Mar-
11
Mar-
12
Mar-
13
Mar-
14
Mar-
15
Mar-
16
Mar-
17
New Business Repayments and write-offs
Upside risks 4. Improvement in new lending flows
Spanish statistics on new loans include ‘novations’ (changes in terms and conditions), so refinanced
operations are included
The forecast suggests that new lending may have bottomed-out in the first half of 2013. In the
future, refinancing will play a less important role
However, new lending will not exceed repayments until the end of 2015, so private-sector
deleveraging has to continue
Page 42
European and Spanish Economic Outlook, March 2014
Spain: GDP (Growth, %) Source: BBVA Research based on INE
Upside risks 5. GDP is now growing
-0,8
-0,6
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
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 (
f)
2Q
14 (
f)
3Q
14 (
f)
4Q
14 (
f)
1Q
15 (
f)
2Q
15 (
f)
3Q
15 (
f)
4Q
15 (
f)
GDP – QoQ growth GDP – QoQ growth - Forecast
As scheduled, GDP began growing after exports, savings, investment in M&E, and new credit flows
started going up
Growth will average around 1% in 2014, and will slowly accelerate towards an annualised pace of
2% by the end of this year
Exports should accelerate and substitute more modest domestic demand growth
Page 43
European and Spanish Economic Outlook, March 2014
Spain: LFS employment (Variation in annual average, %) Source: BBVA Research based on INE
Upside risks 5. Changes in the labour market
-3.1
0.0
1.1
-3.1
0.4
1.0
-3,5
-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2013 2014 2015
Spain Outlook 4Q13 Spain Outlook 1Q14
Net job-creation has started sooner than we expected, partly as a reflection of wage
moderation
Had labour institutions been in better shape at the beginning of the crisis, a million job losses could
have been avoided
In 2014, employment will be created for the first time since the beginning of the crisis; and labour market reform has prevented the destruction of
300,000 jobs
Page 44
European and Spanish Economic Outlook, March 2014
Spain: housing investment, compared with previous recessions (Maximum during expansion = 100) Source: BBVA Research, based on INE data
40
50
60
70
80
90
100
110
120
130
140
tt+
1t+
2t+
3t+
4t+
5t+
6t+
7t+
8t+
9t+
10
t+11
t+12
t+13
t+14
t+15
t+16
t+17
t+18
t+19
t+20
t+21
t+22
t+23
t+24
t+25
t+26
t+27
t+28
t+29
t+30
t+31
t+32
Mar-80 Sep-90 Dec-06
The real-estate cycle: this time is different
40
50
60
70
80
90
100
110
120
130
140
+1
Q+2
Q+3
Q+4
Q+5
Q+6
Q+7
Q+8
Q+9
Q+10
Q+11
Q+12
Q+13
Q+14
Q+15
Q+16
Q+17
Q+18
Q+19
Q+20
Q+21
Q+22
Q+23
Q+24
Q+25
Q+26
Q+27
Q+28
Q+29
Q+30
Q+31
Q+32
Mar-80 Sep-90 Dec-06
The recovery of investment in the real-estate sector tends to run ahead of the cycle...
... however, the current excess of supply will make it unlikely that this time it will accompany the
recovery (effect vs. cause)
The ambitious reform process must also ensure an efficient redistribution of resources between
sectors
Page 45
European and Spanish Economic Outlook, March 2014
Spain: Housing market variables (% average 2004-07) Source: BBVA Research based on Ministry of Public Works
0
5
10
15
20
25
30
35
40
45
Employment Permits Housing starts Completed houses
The real-estate cycle: this time is different
Supply-side correction has already taken place
Housing starts in 2013 were only 5% of those observed at the peak of the cycle
Consequently, housing investment has suffered a large correction: in 2013 it was 4.4% of GDP,
compared to 12.5% in 2006
Page 46
European and Spanish Economic Outlook, March 2014
Spain: home purchases (%, y/y) Source: BBVA Research based on Ministry of Public Works
The real-estate cycle: this time is different
Although demand has adjusted considerably, interest by foreigners has recently improved
Citizens from the UK or Germany have led the charge, but non-traditional clients (such as the
Russians and Chinese) have also appeared
The improvement in domestic demand fundamentals leads us to believe that sales could
have reached their minimum in 2013
-60
-40
-20
0
20
40
60
Mar
-11
Jun-1
1
Sep
-11
Dec-
11
Mar
-12
Jun-1
2
Sep
-12
Dec-
12
Mar
-13
Jun-1
3
Sep
-13
Foreign Domestic
Page 47
European and Spanish Economic Outlook, March 2014
Spain: Real prices in the housing sector (100 = peak of the cycle) Source: BBVA Research based on Ministry of Public Works
60
70
80
90
100
1 2 3 4 5 6 7 8 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
# quarters
Sep-78 Dec-91 Sep-07
4Q13
The real-estate cycle: this time is different
From the peak, house prices have fallen about 37.5% in real terms, the largest correction of any
of the recent crises
In the coming years, a growing demand scenario is expected, within an environment of reducing
housing supply
In the coming quarters, further declines in house prices will be limited: the overall fall from peak to
trough will be around 40%
Page 48
European and Spanish Economic Outlook, March 2014
Spain: Real prices in the housing sector (%, fall from maximum in real terms) Source: BBVA Research based on Ministry of Public Works
-50-45-40-35-30-25-20-15-10-50
ARA
MUR
CLM
MAD
RIO
CANT
CAT
VAL
AND
ESP
CYL
CAN
GAL
BAL
NAV
PV
EXT
AST
The real-estate cycle: this time is different
The real estate market displays increasingly heterogeneous behaviour among regions
Market behaviour is closely related to the level of oversupply and exposure to foreign demand
In some regions, housing prices have accumulated several quarters of growth: Madrid, Balearic
Islands, Canary Islands and Navarra
Page 49
European and Spanish Economic Outlook, March 2014
Spanish banking system: Capital ratios Source: BBVA Research based on Bank of Spain
5%
6%
7%
8%
9%
10%
11%
12%
13%
2007 2008 2009 2010 2011 2012 jun-13
Total Capital Ratio Tier 1 ratio Leverage (Equity/Assets)
The financial system. Solvency: capital is now higher and of better quality
Recapitalisation of weak entities with public funds; bail-in of subordinated debt
• Capital increases: Popular, Sabadell • AT1 issuance: BBVA • Liabilities management exercises
Disposal of non-core assets (equity participations, real estate, etc.)
Deleveraging / RWA optimisation
Page 50
European and Spanish Economic Outlook, March 2014
The financial system. Solvency: what will be the impact of the comprehensive assessment on Spanish banks?
Spain 2012-13
Supervisory Risk Assessment to review key risks, including liquidity, leverage
and funding
Asset Quality Review (AQR) to analyse the quality of the banks’ assets, collateral valuation
and provisions
Stress Test to examine the resilience of the banks’ balance sheets to stress scenarios
Auditors and property appraisers checked all the portfolios, the classification of loans and
collateral valuations
Bank of Spain definitions of non-performing loans and forbearance are similar those of the
EBA
Stress test conducted by Oliver Wyman. Capital needs covered by private or public (€39bn, ESM
credit line) capital injections
ECB 2014
Spanish entities went through a similar exercise, so no major surprises are expected in the ECB comprehensive assessment
Page 51
European and Spanish Economic Outlook, March 2014
Real estate exposures net of provisions (EUR bn) Source: Bank of Spain
0
50
100
150
200
250
Dec-11 Asset salesand others
Transfer toSareb
ProvisionsRoyal Decree
Laws
Dec-12
Credits
Foreclosures
Asset quality: entities have made a big effort to improve asset quality
Real estate accounted for 60% of total defaulted assets
The worst-affected entities have transferred 90% of their assets to Sareb, and are subject to
restructuring plans
The exposure was unevenly distributed among entities (from 2% to 26% of total credit)
The banks have almost finished cleaning-up real estate exposures, in particular the sound entities
Page 52
European and Spanish Economic Outlook, March 2014
Germany France Spain Italy
Commercial policy 1.66 -- -- --
ECB official rate 1.03 1.24 1.29 1.47
Spread 12 months (12m-Euribor) 0.59 1.21 1.6 -0.06*
Spread EMU (10y EMU-Euribor) 0.35 0.69 0.44 0.5
Spread sovereign (10y country-10y EMU) 0.17 0.46 1.22 1.05
CE Regulation 290/2009 0.15 0.54 -0.16 --
-- Does not differ significantly from zero
* Not significant at 20% confidence
Interest rates on new bank lending (%)
(to non-financial corporations, less than EUR1mn, less than one year) Source: ECB
94% of the new loans in Spain have a term of up to one year
Determinants of interest rates on new bank lending (to non-financial corporations) Source: BBVA Research based on ECB and Bloomberg
The price of credit is affected by the sovereign risk premium. The solution to this is banking union
Liquidity: the situation has improved, but current problems are related to European fragmentation
Page 53
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
Sep
.200
8
Jan.2
00
9
May
.2009
Sep
.200
9
Jan.2
01
0
May
.2010
Sep
.201
0
Jan.2
01
1
May
.2011
Sep
.201
1
Jan.2
01
2
May
.2012
Sep
.201
2
Jan.2
01
3
May
.2013
Sep
.201
3
Jan.2
01
4
Euro Area Germany Spain Italy France
European and Spanish Economic Outlook, March 2014
Net income and loan loss provisions (€bn) Source: BBVA Research based on Bank of Spain
-20
-10
-
10
20
30
40
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13
Provisions Net income
72bn
-57bn
Profitability: on average, the system is unlikely to return to the pre-crisis levels
Average profitability will not return to the pre-crisis levels
In the future there will be lower interest rates, higher risk aversion, stricter regulation and
supervision and less buoyant liquidity
However, dispersion among entities can be higher, as banks that anticipate these changes will show a
better performance
Banks that have already diversified geographically will be in a better position
Page 54
European and Spanish Economic Outlook, March 2014
Desirable solution
Complete the restructuring
Overcapacity
Deleverage of the private sector
Quick resolution of intervened institutions, as international experience shows that public banks can be inefficient
Networks should adapt to the new size of the market. Number of branches and employment have been reduced by 23% and 15% respectively (vs. 35% and 28% expected
by the end of the process)
Compatible with the provision of credit to solvent demand, by most capable institutions (those with access to liquidity)
Problem
An efficient implementation of current plans is crucial for the success of the restructuring
Risks: The restructuring is almost finished, but there are some pending issues
Page 55
European and Spanish Economic Outlook, March 2014
Changes in the corporate insolvency law will facilitate corporate debt restructuring
New RDL on corporate debt restructuring Source: BBVA Research based on BOE
Measures
Possibility of individual debt refinancing agreements
Simplified procedures for collective debt refinancing agreements
Reduction in the level of required majorities to impose refinancing agreements on dissident creditors
BoS needs to develop new provisioning framework for refinanced loans
In case of insolvency, fresh money with privileged status and old debt non-subordinated
Takeover exemption when creditors convert into equity
Other measures: including fiscal benefits…
New measures announced last week remove obstacles to agreements between financial creditors and debtors
Spanish Financial System
• Increases legal certainty
• If restructuring ends in insolvency, financial creditors are not in a worse position
• Foreseeable better provisioning framework
• Conversion of debt into equity raises new issues (management, capital consumption..)
Corporates
• Deleveraging of worst quality loans
• Adjustment of debt to companies’ financial capacity
• New funding for viable business plans
Page 56
European and Spanish Economic Outlook, March 2014
Credit to the private sector (% GDP) Source: ECB and Bank of Spain
Pending issues: deleverage is much needed in terms of stocks
8% 10% 6% 7% 7% 6%
30%
63%60%
28%38% 40%
40%
52% 46%
11%
41%
22%
33%
48%
39%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
Dec-00 Dec-08 Dec-13 Dec-00 Dec-08 Dec-13
Spain EMU
Consumption Housing Businesses
Real estate businesses Rest of businesses
43%
Businesses
Private-sector leverage is excessive. Spanish levels are above those of EMU
Deleveraging will continue in terms of the stock of outstanding credit
Compared to EMU, the most significant differences are in real estate businesses and mortgages
Page 57
European and Spanish Economic Outlook, March 2014
Activity declines at some companies, so they no longer have any demand for credit
This is a common pattern in Spanish crises, and investment is starting to improve
The most promising sectors are those related to exports
There is asymmetric information: some clients have to resort to another financial entity that does
not know them
Projects have higher risk due to the economic situation
Financial fragmentation affects funding conditions. Regulation and supervision are stricter
Credit Demand
Economic situation and uncertainty: businesses are not investing
The restructuring affects a limited number of entities, which do not have access to liquidity
Pending issues: deleverage. What factors are affecting the supply of credit?
Page 58
European and Spanish Economic Outlook, March 2014
Index Section 1
Global economy: a gradual acceleration supported by growth in developed economies
Section 2
Europe: the slow recovery continues, the risk of deflation is very low, but… Section 3
Spain: upside risks for the first time since the beginning of the crisis
Section 4
Spain: commitment to the reform process is crucial to consolidate “recent” market improvement and increase potential growth
Page 59
European and Spanish Economic Outlook, March 2014
The need to broaden the scope of the reform agenda GDP growth and job-creation Source: BBVA Research and Lebergott (1964)
Assumptions for the USA and the EMU are consistent with BBVA Research’s scenario. The Spanish scenario has been built assuming both that productivity per worker rises 0,6% (as was the case between 1992 and 2007) and that GDP grows on average by 2,5%
80
85
90
95
100
105
Pico 2 4 6 8 10 12 14 16 18años
Level of
em
plo
ym
ent
at
the b
egin
nin
g o
f th
e c
risi
s =
10
0
Spain, 2007-2025 EMU, 2007-2017 USA., 2007-2014
USA 1929-1940
Peak years
The recovery in employment will be very sensitive to economic growth
The objective should be to introduce the necessary reforms to increase economic growth to close to
or above 2.5%
Unless this happens, job-creation will be limited and the recovery slow
Page 60
European and Spanish Economic Outlook, March 2014
Spain: what else can be done? A. Encourage a gradual deleveraging Spain: cyclical and structural components of the current account balance (% of GDP) Source: BBVA Research
-12
-10
-8
-6
-4
-2
0
2
4
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 (p)
2014 (p)
2015 (p)
2016 (p)
2017 (p)
2018 (p)
2019 (p)
2020 (p)
Cyclical component Structural component
Adjusted current account Observed current account
* Provisions for loan losses, repossessed assets, early retirements, restructuring charges and other
Deleveraging must continue, in both the private and public sectors, but at a pace consistent with
economic recovery,…
…, so that the impact of the fiscal consolidation effort on growth is minimised and public finances
remain sustainable
Huge balance sheet clean-up in the banking sector: total provisions of €239bn* have been charged
against results since 2008
Page 61
European and Spanish Economic Outlook, March 2014
Spain: what else can be done? B. Improve the composition of foreign financing Spain: FDI (% GDP) Source: BBVA Research based on Banco de España
Page 62
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
Average 2000-2008 Average 2009-2012
Strategic plan to improve competitiveness, …
…, increase the attraction of Spain to international investors, in terms of physical capital …
…, human capital and technological capital)
European and Spanish Economic Outlook, March 2014
Temporary Employment Rate (% of workers with a temporary contract) Source: BBVA Research
Spain: what else can be done? C. Improvements in the labour reform
UEM17
Bel
Ger
Est
Irl Gre
Spa
Fra
Ita
Cyp
Lux
Mal
Nl
Aus
Por
Esl
Slvk
Fin
0
5
10
15
20
25
30
0 5 10 15 20 25 30
2012
2008
Page 63
Promote reforms that make it more attractive to sign open-ended contracts,…
…, improve the efficiency of both active and passive labour market policies…
…, and raise the quality of human capital
European and Spanish Economic Outlook, March 2014
Spain: what else can be done? D. Improve our competitiveness EU: current account and unit labour costs change 4T08-2T13 Fuente: BBVA Research and Eurostat
BE
CZ
DK
DE
EE
IE
EL
ES
FR
IT
CYLV
LT
LU
HU
MTNL
AT
PL
PT
RO
SI
SK
FI
SE UKNO
-10
-5
0
5
10
15
20
-20 -10 0 10 20 30
Chan
ge
in t
he
curr
ent
acco
unt
bal
ance
over
G
DP (p
p)
Change in unit labor costs (%)
Productivity gains since the beginning of the crisis have been significant (more than 12%)
and generalised, across both non-tradables and…
… manufactures (growing by well over 20%)
Page 64
European and Spanish Economic Outlook, March 2014
Spain: what else can be done? D. Improve our competitiveness Effect on a firm’s exporting probability of an exogenous change in each determinant (%) source: BBVA Research based on ESEE, Fundación SEPI
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Size Skilled labor Competition Foreignownership
R&D andadoption
K per worker
The most important determinant of internationalisation is a firm’s size
An increase of 10 workers (on average, from 50 to 60 employees) would raise the firm’s exporting
probability by 1.69%
Barriers to a firm’s growth remain in the tax system or in regulation, especially in services or in
the labour market Key to tackle them to improve growth incentives
Page 65
European and Spanish Economic Outlook, March 2014
Main messages
1
2
3
The global economic cycle is improving and we expect a moderate acceleration in growth in 2014-15, supported by growth in developed economies
Some economic policy uncertainties have been resolved but there are still risks, although not of a systemic nature, as was the case in the past
The slow recovery in the eurozone continues, thanks to favourable economic policies and an improvement in the financial environment. The comprehensive review should eventually help to reduce financial fragmentation
For the first time since the beginning of the crisis, the bias to our forecasts for the Spanish economy is to the upside. The recovery is being driven by exports, import substitution and the recovery in new lending
The scope of the reforms needs to be expanded, if they are to underpin a robust and sustained recovery and, within a reasonable period, replace the jobs destroyed
4
5
Page 66
European and Spanish Economic Outlook
Jorge Sicilia Chief Economist, BBVA Group March 2014
European and Spanish Economic Outlook, March 2014
Appendix: Capital flows to Emerging Markets
Página 68
European and Spanish Economic Outlook, March 2014
-4,0 -2,0 0,0 2,0 4,0
USA
Canada
Sweeden
Denmark
Germany
Netherlands
Belgium
Spain
Portugal
Poland
Hungary
Russia
Brazil
Colombia
Argentina
India
Thailand
Philippines
Singapore
Portfolio re-balancing away from EM assets continues as anticipated last summer. EU Periphery has benefited the most
Portfolio Flows June 13 (Country Flows over Total Assets) Source: BBVA Research through EPFR
Portfolio Flows July-Feb* 13 (Country Flows over Total Assets, average, * Feb estimated) Source: BBVA Research through EPFR
-4,0 -2,0 0,0 2,0 4,0
USA
Canada
Sweeden
Denmark
Germany
Netherlands
Belgium
Spain
Portugal
Poland
Hungary
Russia
Brazil
Colombia
Argentina
India
Thailand
Philippines
Singapore
BBVA Country Portfolio Flows Map(Country Flows over total Assets )
Source: BBVA Research through EPFR data
USA # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Japan # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Canada # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
UK # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Sweeden # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Norway # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Denmark # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Finland # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Germany # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Austria # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Netherlands # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
France # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Belgium # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Italy # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Spain # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Ireland # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Portugal # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Greece # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Poland # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Czech Rep # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Hungary # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Turkey # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Russia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Mexico # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Brazil # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Chile # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Colombia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
PeruPeru # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Argentina # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
China # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
IndiaIndia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Korea # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Thailand # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Indonesia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Philippines # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Hong Kong # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
Singapore # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #
2012 2013 2014
G4
Weste
rn E
uro
pe
EM
Eu
rLA
TA
MA
sia
2008 2009 2010 2011
###
###
###
0.50
1.20
3.00
Strong Capital Outlows (between -1 % and -2 %)
Moderate Capital Outflows (between 0 and -1 %)
Moderate Capital Inflows (between 0 and 1 %)
Strong Capital Inflows (between 1 % and 2 %)
Booming Capital Inflows (greater than 2 %)
Sharp Capital Outflows (below -2 %)
Singapore
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European and Spanish Economic Outlook, March 2014
Emerging Market flows have entered the “Undershooting” phase. Further adjustment?
-20%
-18%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43
Current (Since May 2013) Lehman Brothers (since Aug-2008)
weeks
Capital outflows from emerging markets, tapering vs. LB’s episode (Cumulative as % of AUM) Source: BBVA Research, IMF and EPFR
Emerging Markets: Cumulative Net Capital Flows (Cumulative since 2005, US$ bn) Source: BBVA Research, IMF and EPFR
-200
-100
0
100
200
300
400
500
600
700
800
2006
2007
2008
2009
2010
2011
2012
2013
2014
Page 70
European and Spanish Economic Outlook
Jorge Sicilia Chief Economist, BBVA Group March 2014