Download - The Global Economic Outlook and the Spanish Economy

The Global Economic Outlook and the Spanish Economy

Rafael Doménech IADS FINANCIAL DIRECTORS MEETING Madrid, October, 3 and 4, 2013

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


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


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


… with signi!icant 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

Spain Economic Outlook, September 2013

Page 6

BBVA financial tensions index Source: BBVA Research

Eurozone: political gridlock in Italy; bail-out in Cyprus; Portugal’s 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

LehmanBrothers

1st bail outof Greece

Risk of Euro break up

Sovereign & bankingcontagion in the EZ


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

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

Serie9 Serie3 Serie4 MICA-BBVA GDP observed CI 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%


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


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-0

9

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 FranceSpain Italy

… and financial fragmentation is still high

Page 9


FED’s 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 Bernake´s 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-1

2

Sep-12

Nov-12

Jan-13

Mar-13

May

-13

Jul-1

3

Sep-13


… impacting especially in emerging economies

…, which could impact growth prospects if persistent in time.

Capital outflow from emerging countries,…

…, due to idiosyncratic reasons,…

BBVA´s 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-s

ep-1

0

22

-dic

-10

13

-abr-

11

3-a

go-1

1

23

-nov-

11

14

-mar

-12

4-ju

l-12

24

-oct

-12

13

-feb

-13

5-ju

n-1

3

25

-sep

-13

Emerging Markets, left axis Developed Markets, right axis

Page 11


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


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 3.13.8

2.8

1.82.3

-0.5 -0.4

1

5.15.2

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


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


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

2Q

09

3Q

09

4Q

09

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

CI at 20%

CI at 40%

CI at 60%

Data (MICA-BBVA Nowcast for 3Q13)


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 .


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 both price and

quality

Exports (% change, 1Q12-2Q13) )*): Data unitl 1Q13 Source; BBVA Research based on INE

-5% 0% 5% 10%

IrelandNorwayFinlandSwedenBelgium

DenmarkItaly

FranceAustria

European UnionEuro area

NetherlandsUnited Kingdom

GermanySwitzerland

PortugalSpain


Page 18

The current account balance: from deficit to surplus

Productivity gains have been large since the beginning of the crisis (12%)

Tradeables like manufacturing and industry have had gains above 20%

They have been widespread and not concentrated in residential construction

EU: cumulative change in Current Account and unit labour costs, 1Q08-4Q12 (%) Source: BBVA Research based on Eurostat data

BE CZ

DK

DE

EE

IE

EL

ESP

FR

IT

CY

LV

LT

LU

HU

MT NL

AT

PL

PT

RO

SI SK

FI

SE UK

NO

-6

-4

-2

0

2

4

6

8

10

12

14

16

-15 -10 -5 0 5 10 15 20

Cu

rren

t A

cco

un

t (c

han

ge in

pp

)

Unit labor Costs (% change)


Page 19

Spain: Financing Capacity (+) / Needs (-) with the rest of the world (% of GDP) Source: BBVA Research

A stable private saving rate and the reduction in the investment rate…

…have allowed firms to increase their financial capacity, fuelling a deleveraging process that

is now hitting its fifth year

The current account balance: from deficit to surplus

This has improved their balance sheets, placing them in a better position to resume

investments

-15%

-10%

-5%

0%

5%

10%

2007 2013(f)

Private sector Public sector Total


Page 20

60

70

80

90

100

110

120

130

140

Dec

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Jun-

00

Dec

-00

Jun-

01

Dec

-01

Jun-

02

Dec

-02

Jun-

03

Dec

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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

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

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Jun-

14

Dec

-14

Exports GFKF: Equipement and Machinary

Investment in equipment and machinery recovering Spain: exports and investment in equipment and machinery (2008=100) Source: BBVA Research based on INE data

Brighter prospects for the EMU and sustained growth in exports...

Indeed, in 1H13 investment grew 8% yoy

… should drive higher private investment


Page 21

Public administrations: budget deficit breakdown excluding financial sector aid (% of GDP) Source: BBVA Research, based on MINHAP data

Fiscal consolidation will require smaller efforts

Fiscal consolidation is working: budget effort in 2012 was above 4pp of GDP

Overall, there are still major reforms to be undertaken (pensions, local corporations, PES), that would increase the efficiency of the public

administrations

2014 will not require as great an effort as in 2013 and 2012

9.0

2.64.6

7.0

1.7 2.2

6.5

-0,1 0.6

5.8

0

2

4

6

8

10

12

14

Def

icit

Pas

sive

fis

cal polic

y

Fis

cal ef

fort

Def

icit 2

012

Pass

ive

fisca

l pol

icy

Fis

cal e

ffor

t

Def

icit

201

3

Pass

ive

fisca

l pol

icy

Fis

cal e

ffor

t

Def

icit

201

4

2011 2012 2013 2014


Job destruction has slowed down in the last few quarters…

Should Spain have had better labor institutions at the beginning of the crisis, job destruction

would have been lower

…, partly thanks to wage moderation

Spain: GDP, employment and productivity (% qoq) Source: BBVA Research based on INE

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

mar

-08

ju

n-0

8

sep-0

8

dic

-08

mar

-09

ju

n-0

9

sep-0

9

dic

-09

mar

-10

ju

n-1

0

sep-1

0

dic

-10

mar

-11

ju

n-1

1

sep-1

1

dic

-11

mar

-12

ju

n-1

2

sep-1

2

dic

-12

mar

-13

ju

n-1

3

sep-1

3 (

e)

Employment f.t.e Labor productivity GDP

Page 22

The labour market is stabilising


Spain: impact of wage moderation in 2012 on employment (thousands of jobs) Source: BBVA Research

Labour market reform and the 2nd Agreement on Employment and Collective Bargaining prevented greater job destruction in 2012

The existence of better employment institutions at the onset of the crisis might

have prevented the destruction of around one million jobs

Without the wage moderation of 2012, an additional 60 thousand jobs would have been

lost in the short term (300 thousand in the medium and long term)

The labour market is stabilising

0

200

400

600

800

1000

1200

Short term From the third year From the third year

Employment destruction avoided by thewage moderation

Jobs that would besaved if the processhad begun in 2008

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Page 24

A window of opportunity that must be seized

The baseline scenario is highly sensitive to financial conditions in international markets, while numerous risks persist

Europe should progress towards a more genuine EMU. For this, progress towards the banking union in 2013 and European policies

to promote growth are crucial

Efforts to achieve permanent improvement of markets and take advantage of it, unlike previous recovery in the past

Spain must strengthen efforts with the ongoing adjustments and structural reforms required to boost the competitiveness of its

economy


Page 25

A window of opportunity that must be seized

The ECB is serving as a bridge until the new institutional framework is established

Banking union is key to tackling market fragmentation. Any delay implies risks

The new fiscal and imbalances detection framework should serve to deliver a better balance between fiscal consolidation and

structural reforms in EMU members

The medium term goal of configuring some form of fiscal union requires significant pre-requisite steps

Rafael Doménech IADS FINANCIAL DIRECTORS MEETING Madrid, October, 3 and 4, 2013

The Global Economic Outlook and the Spanish Economy