Recent Developments in the Spanish Economy & Funding Outlook. 5 th June 2018

Transcription

1 Recent Developments in the Spanish Economy & Funding Outlook 5 th June 2018

2 Disclaimer This presentation material has been prepared by the Spanish Treasury and is updated on a regular basis, using only public and already published information. We reserve all rights. This document is for information purposes only. Nothing in this presentation material constitutes, or forms part of, any offer or invitation to underwrite, subscribe or otherwise acquire or dispose of Spanish Government debt. It is provided for information purposes only and it is not intended to provide the basis for any credit or any other third party evaluation of that debt. While the Spanish Treasury applies its best efforts to include accurate information and the information herein is believed to be reliable, it makes no representation or warranty as to the accuracy or completeness of such information. Distribution of information contained in this presentation material may be forbidden or limited by legislation of some jurisdictions. ACCESS IS DENIED TO PERSONS TO WHOM THESE RESTRICTIONS IN SUCH JURISDICTIONS APPLY AND GRANTED ONLY TO JURISDICTIONS IN WHICH THE DISTRIBUTION OF THIS INFORMATION IS NOT LEGALLY LIMITED. The information contained on this website does not constitute an offer for sale in the United States of America. The securities described have not been, and will not be, registered under the US Securities Act of 1933, as amended, or with any securities regulatory authority of any state or other jurisdiction in the United States of America and may not be offered or sold, directly or indirectly, into the United States of America unless the securities are so registered or an exemption from the registration requirements is available. Each person is required to inform himself accordingly and to comply with applicable restrictions. The Treasury of the Kingdom of Spain is by no means liable for any such infringement. As a consequence of the previous information, you confirm that you are not a resident of the United States of America or of any jurisdiction in which the distribution of this information is legally limited and that you will not distribute any of the information and documents contained hereon to any person resident in the United States of America or in any jurisdiction in which the distribution of this information is legally limited. None of the information displayed or in connection with the presentation material is an offer of securities for sales in the United States of America.

3 1 Highlights Spain is in a self-sustaining, competitive growth phase. Bullets Product- and labour-market reforms have improved export competitiveness. Financial sector reform recapitalisation process enable efficient resource reallocation. Labour-intensive recovery: more domestic demand compatible with external competitiveness. National deleveraging is progressing, enabled by growth and current account surplus. Budget Law 2018 approved in Congress. General Government deficit to be clearly below 3% EU reference value. Local authorities in surplus. More fiscal space given to regions. After recent rating upgrades, Spanish debt is being granted semi-core status. Expect a widening, deepening of its investor base, and an improvement in average quality of participants.

4 2 Change in Spain s growth pattern A new feature of the Spanish economy: contrary to previous expansions, the current one is export-led and labour-intensive. Less investment in construction, more exports, higher weight of services sector. Investment has converged to Euro Area average. Exports and Imports of Goods and Services & Gross Fixed Capital Formation. (% of GDP) Gross Value Added. (% of GDP) Demand & Supply Rebalancing Source: Instituto Nacional de Estadística. Source: Instituto Nacional de Estadística.

5 3 A labour-intensive recovery Labour market reform produced a structural competitiveness gain. Export competitiveness reallocates labour, reduces unemployment, fuels internal demand. Labour Market Real Unit Labour Costs. (Index 1999=100, Smoothed) Monthly Unemployment Rate. (% of Active Population. Seasonally Adjusted) Source: EUROSTAT. Source: EUROSTAT.

6 Banking sector reform enabled resource reallocation Ambitious adjustment of the banking sector: Significant downsizing, loss recognition. Increase in equity. Complete restructuring. Strong improvement in NPLs: harmonised NPL ratio very close to EU average. Adjustment in Deposit Taking Institutions (Number of Employees and Branches) Financial Sector Loan-to-Deposits & Equity to Assets. (In %) Source: Bank of Spain. Harmonised NPL Ratio. (In % of Total Loans) Source: Bank of Spain. Source: EBA. Risk Dashboard Interactive Tool. 4

7 5 Public and private deleveraging are linked Public debt peaked in Since then it has been reduced by 2pp of GDP. Since 2010Q2, private sector leverage decreased by 59.7pp of GDP households & nonfinancial corporations leverage in line with Euro Area average. General Government Debt. EDP. (% of GDP) Private Sector Debt Dynamics. (% of GDP. Non-Consolidated) Private Sector Deleveraging Sources: Bank of Spain and Ministerio de Economía, Industria y Competitividad. Projections contained in the Draft Budget Bill for Source: EUROSTAT, Banco de España and Instituto Nacional de Estadística.

8 6 Core inflation has converged to Euro Area levels Spanish core inflation fully in line with Euro Area average. Wage inflation and administered prices stable despite strong employment creation. Energy remains a major contributor to shifts in headline inflation. Inflation Core Inflation. (Year-on-Year Growth Rate and Differential) Selected Sub-Components of Spanish HICP. (Year-on-Year Growth Rates) Source: EUROSTAT. Source: EUROSTAT.

9 7 Result: persistent growth with current account surplus Four consecutive years of growth, five consecutive years of current account surplus. Unprecedented in recent Spanish history. Growth better diversified: internal and external demand. Exports better diversified geographically, by type of product. Proven resilience to strong Euro. External Rebalancing GDP Growth vs. Peers. (Year-on-Year Growth Rates) Current Account & Goods and Services Balance. (% of GDP) Source: Eurostat. Source: Instituto Nacional de Estadística and Bank of Spain.

10 Macroeconomic scenario Upward revision to forecasts: Spanish Government, official institutions & private sector. Growth to continue through internal and external demand. Macroeconomic Scenario Sources: Ministerio de Economía, Industria y Competitividad and Ministerio de Hacienda y Función Pública. For 2017: shaded areas are realisations. In white, forecasts contained in the Stability Programme Update

11 9 Fiscal policy framework General Government deficit expected well below 3% by end Deficit in Social Security System expected to fall by two thirds by Fiscal Policy Net Lending(+)/Borrowing. (% of GDP) Forecast Central Government Autonomous Regions Local Governments Social Security General Government Primary Balance Memorandum items* f 2019f 2020f 2021f Interest Expenditure Financial Sector One-offs Revenue Expenditure Source: Ministerio de Hacienda y Función Pública. Forecasts are those contained in the Stability Programme Update

12 10 The Treasury s funding programme in 2018 Net issuance of 40 bn in 2018; programme includes loan to Social Security. Total issuance up to May 31 st : 95.6 bn, 44.4% of the funding programme Medium- and long-term: 65 bn (49.5%), and Short-term (Letras del Tesoro): 30.6 bn (36.4%). Funding Programme in 2018 Funding Programme The Treasury s Funding Programmes Since 2012 (In bn) (In billon euros and in effective terms) End 2017 Forecast 2018 Source: Secretaría General del Tesoro y Política Financiera. Total Net Issuance Total Gross Issuance Medium- and Long-term Gross Issuance Amortisation Net Issuance Letras del Tesoro Gross Issuance Amortisation Net Issuance Includes debt in other currencies, Bonos y Obligaciones, loans and assumed debts. Source: Secretaría General del Tesoro y Política Financiera.

13 11 Cost and life of debt: a longer portfolio at historically low rates Average cost of debt outstanding at historic low (2.52%). Slight increase in cost of 2018 YTD issuance due to longer tenors issued in Since 2013 average life of debt outstanding increased from 6.20 years to 7.52 years. Funding Programme Cost of Debt Outstanding and Cost at Issuance (*As of May 31 st 2018, in percent) Average Life of Debt Outstanding (*As of May 31 st 2018, in years) Source: Secretaría General del Tesoro y Política Financiera. Source: Secretaría General del Tesoro y Política Financiera.

14 12 Recent trends in investor base Spanish banks have been reducing their absolute and relative holdings of Spanish bonds: Bank of Spain s holdings have increased its share to 21.3% (vs. 3.7% in February 2015) Non-resident investors increased their holdings, stable around 44%. Funding Programme Holdings of Letras & Bonos and Obligaciones del Estado ( mn) Source: Bank of Spain. ( IBERCLEAR data / Securities Holdings Statistics)

15 Ratings Expecting more foreign investors after recent upgrades: A- positive outlook (S&P), A- stable outlook (Fitch), A stable outlook (DBRS), Baa1 stable (Moody s). Aaa/AAA/AAA 16 Aa1/AA+/AA H Aa2/AA/AA Aa3/AA-/AA L A1/A+/A H A2/A/A A3/A-/A L Baa1/BBB+/BBB H Baa2/BBB/BBB 8 Baa3/BBB-/BBB L Ba1/BB+/BB H (rating) Rating and Rating Actions vs. End-of-Month Spread to 10Y Bunds (basis points) Fitch S&P DBRS Moody's January 19 February March 23 April 6 13 May June July 13 August September October 5 November December Funding Programme MOODY'S S&P FITCH DBRS Risk Premium (rhs) 13

16 Thank you for your attention Fernando Navarrete General Secretary of the Treasury and Financial Policy Carlos San Basilio Director General of the Treasury Pablo de Ramón-Laca Head of Funding and Debt Management Leandro Navarro Rosa Moral Mercedes Abascal Manuel Blanco Bernardo de Lizaur For more information please contact: Phone: /30/31/32 - Fax: Reuters: TESORO Bloomberg: TESO Internet: For more information on recent developments: