Spain Economic Outlook 2 nd quarter 2015 Spain outlook 2nd quarter 2015
Spain Economic Outlook 2nd quarter 2015
Spain outlook
2nd quarter
2015
Spain Economic Outlook 2nd quarter 2015
The Spanish economy continues to
accelerate and face an improvement in its
fundamentals, while the risks have still not
materialised.
Spain should take advantage of this situation
by making progress in reforms that enable it
to continue growing, even in less promising
scenarios
Spain Economic Outlook 2nd quarter 2015
Global
Spain Economic Outlook 2nd quarter 2015
USA Spain Eurozone EAGLEs China
Emerging Asia LatAm
2016
2016
0.6
2015
2015
Source: BBVA Research
Global
A weaker and more uneven recovery
2016 2015
2016 2015 2016 2015 2016 2015
Downward Maintained Upward
2016 2015
2016 2015
1.6 2.7 3.0 2.2 5.3 4.9 6.6 7.0
2.8 2.9
2.1 3.5 3.9 6.7 6.8
See: https://www.bbvaresearch.com/en/public-compuesta/global-economic-outlook-second-quarter-2015///
Spain Economic Outlook 2nd quarter 2015
Source: BBVA Research
Global GDP growth and BBVA-GAIN
forecasts
(QoQ, %)
• In Europe the upturn in activity is escalating
• In Latin America and Asia growth is losing momentum
• The slowdown in the
United States will be temporary
A weaker and more uneven recovery
CI at 20% GDP (% QoQ) CI at 40% CI at 60%
0
0 . 25
0 . 50
0 . 75
1 . 00
1 . 25
1 . 50
2 . 8 % annualised
Mar-15
Spain Economic Outlook 2nd quarter 2015
USA: a temporary slowdown
USA
GDP growth (%)
• Rising employment
and low inflation are
underpinning household
income and consumption
• This will offset the dollar
appreciation and the
halting of external
demand
Source: BBVA Research
-3.0
-1.5
0.0
1.5
3.0
4.5
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
Annualised quarterly rate BBVA forecast
Spain Economic Outlook 2nd quarter 2015
Differentiation among monetary policies
• Since January 2015 the central banks have taken: 27 decisions to
lower interest rates 2 decisions to raise
them Source: BBVA Research, Haver Analytics
Interest rate expectations (%, outlook one year ahead of interest rates by the
Fed and the ECB)
-0.15
0.00
0.15
0.30
0.45
0.60
0.75
Jan-13 Apr Jul Oct Jan-14 Apr Jul Oct Jan-15 Abr
FED ECB
Spain Economic Outlook 2nd quarter 2015
Real effective exchange rate (YoY %, March-15)
Source: BBVA Research, BIS
QE is depreciating the euro and lower rates
• The cost of new loans to businesses has fallen within the Eurozone by 67 basis points in the last year to 2%
Negative values are currency depreciations
-15
-10
-5
0
5
10
1 5
E u r o D ol l a r
- 13%
12%
Spain Economic Outlook 2nd quarter 2015
Changes in exchange rates against the dollar Dec14-April15
The exchange rate as a variable for adjustment
• The depreciation in the currencies of the emerging economies reflects their reliance on funding from outside
Source: BBVA Research, Bloomberg
Brasil
India
Turkey
Mexico
Colombia
Indonesia
South Africa
- 15.1
+ 0.3
- 15.5
- 4.4
- 6.3
- 3.9
- 4.2
Spain Economic Outlook 2nd quarter 2015
Emerging
Markets Impact of Fed
normalisation
process
Source: BBVA Research
Europe Greece
What are the risks?
Global geo-
politics Middle East,
Russia/Ukraine
China Sharp correction
in activity
Increased risk
Maintained risk
Spain Economic Outlook 2nd quarter 2015
Greece in the spotlight
• Little progress in the negotiations and strong liquidity pressures
• The scenario of a default
and/or Grexit is not in Greece’s interests
• Given a scenario of risk, the
impact in Europe would be more limited
Upcoming maturities of sovereign debt (EUR mM)
Source: BBVA Research
August
July
June
May 1
3.6
4.7
1.7
Spain Economic Outlook 2nd quarter 2015
Spain
Spain Economic Outlook 2nd quarter 2015
1.4
2014
2.7
2016
Source: BBVA Research
3.0
2015
Revision to the upside of growth in Spain
%
% %
Spain Economic Outlook 2nd quarter 2015
Source: BBVA Research
• Growth is accelerating at around an annualised 4%
• A local maximum since 2008 and in line with the 2001-07 average growth
Revision to the upside of growth in Spain
GDP growth and MICA-BBVA forecasts 2nd quarter 2015 (%)
2Q15
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
CI at 60% CI at 20% CI at 40% GDP (%QoQ)
2009 2010 2011 2012 2013 2014 2015
Spain Economic Outlook 2nd quarter 2015
Domestic demand and exports of services are driving growth
• Private consumption accounts for most of the growth
• Services exports and
M&E investment continue to boost internationalisation
Source: BBVA Research
Average contribution to GDP growth in
the last quarter
Private consumption
2.1 Exports of services
Investment in M&E
Other demand components 0.00
0.6
0.4
(Annualised quarterly growth rate)
Spain Economic Outlook 2nd quarter 2015
Forward
The tailwinds are picking up
Greater euro depreciation
Fall of oil price
EMU
growth
revised
upwards
Spain Economic Outlook 2nd quarter 2015
Source: BBVA Research with data from Bank of Spain
+8,6%
On the plus side:
Flows of new credit in 1Q15 The flow of new credit has surged ahead YoY % in 1Q15
Households Retail
11.6% SMEs*
9.9% 15.8%
* Loans of less than one million euros to companies
Spain Economic Outlook 2nd quarter 2015
Source: BBVA Research
Risks
Tensions and policy uncertainty
UK General
elections
Greece Still in the spotlight
Ukraine Conflict with Russia continues
Italy Undergoing
reform process
Spain Election year
Portugal General
elections
Spain Economic Outlook 2nd quarter 2015
Risks
Delay in reducing imbalances
Source: BBVA Research
-6,3
-5,5
-4,2
• The deficit for the regions widened in 2014
• Rigorous budget
implementation and credible plans are key
Autonomous Communities public deficit
(% GDP)
-1.5
-1.7 -0.14 -0.03
2 0 1 3
Revenues Expenditure
2 0 1 4
Target 2014
1.0%
See Box 4 of Spain Economic Outlook
Spain Economic Outlook 2nd quarter 2015
Source: BBVA Research
Contribution to YoY GDP growth
• Even though the internationalisation process is unlikely to be reversed, the increase in domestic demand might slow it down
Risks
Less vigour in exports
Exports of goods Domestic demand
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
Spain Economic Outlook 2nd quarter 2015
Source: BBVA Research
Jobs creation (thousands)
• The unemployment rate will come down to around 20% by the end of 2016
• The reforms must be continued to carry on reducing unemployment
One million more jobs over 2015 and 2016
2010 20 1 1 2012 2013 2014 2015 2016
-382 -303
-788
-493
205
518 519
Spain Economic Outlook 2nd quarter 2015
Challenge
Investing and bringing down borrowing
Net lending / net borrowing (% GDP)
• The investment recovery should not be accompanied by a drop in saving
• Progress in public
saving will be key in the upcoming years
Source: BBVA Research See Box 1 of Spain Economic Outlook
2007 2007 2009 2011 2013 2014 2015 2016
15
20
25
30
35
-10
10
-5
0
5
Left: Investment Saving
Right: Net lending / Net borrowing
Spain Economic Outlook 2nd quarter 2015
Reform
Law of second chance
Appropriate regulation
Monitoring and evaluation
Improve credit for new projects
See Box 3 of Spain Economic Outlook
Spain Economic Outlook 2nd quarter 2015
Challenge
Greater competition in the services sector
Regulation in services and inflation of
intermediate consumption in manufacturing
Deregulation vs. no deregulation, average • In the past, reforms
have helped to enhance competitiveness
• Reforms such as the
Professional Services Act are necessary
Source: BBVA Research See Box 2 of Spain Economic Outlook
Electric equipment
Transport equipment
Other manufactures
Textiles
Basic metals
Paper industry
Rubber and plastics
Chemical industry
Food industry
Non-metallic minerals
- 0 . 1 5
- 0 . 2 4
- 0 . 3 1
- 0 . 3 6
- 3 8
- 0 . 4 0
- 0. 4 4
- 0. 4 8
- 0. 5 0
- 0 . 6 8
0.
Spain Economic Outlook 2nd quarter 2015
Conclusions
Spain Economic Outlook 2nd quarter 2015
• The economy will create around 1 million jobs in 2015 and
2016
• Advantage should be taken of this environment to make
progress in reforms which make it possible to continue to
grow, even in less favourable scenarios
• Increasing domestic saving and improving regulation to
increase investment and reduce external borrowing, a
challenge for the Spanish economy
Spain Economic Outlook 2nd quarter 2015
The Spanish economy continues to
accelerate and face an improvement in its
fundamentals, while the risks have still not
materialised.
Spain should take advantage of this situation
by making progress in reforms that enable it
to continue growing, even in less promising
scenarios