Spanish economy A spotter s guide to the Spanish economy

Transcription

1 Banco Sabadell Investor Relations Spanish economy A spotter s guide to the Spanish economy This document has been prepared by: Investor Relations at Banco Sabadell - investorrelations@bancsabadell.com

2 Disclaimer Banco Sabadell cautions that this presentation may contain forward looking statements with respect to the business. financial condition. results of operations. strategy. plans and objectives of the Banco Sabadell Group. While these forward looking statements represent our judgement and future expectations concerning the development of our business. a certain number of risks. uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include. but are not limited to. (1) general market. Macroeconomic. governmental. political and regulatory trends. (2) movements in local and international securities markets. currency exchange rate. and interest rates. (3) competitive pressures. (4) technical developments. (5) changes in the financial position or credit worthiness of our customers. obligors and counterparts. These risk factors could adversely affect our business and financial performance published in our past and future filings and reports. including those with the Spanish Securities and Exchange Commission (Comisión Nacional del Mercado de Valores). Banco Sabadell is not nor can it be held responsible for the usage. valuations. opinions. expectations or decisions which might be adopted by third parties following the publication of this information. Financial information by business areas is presented according to GAAP as well as internal Banco Sabadell group s criteria as a result of which each division reflects the true nature of its business. These criteria do not follow any particular regulation and can include forecasts and subjective valuations which could represent substantial differences should another methodology be applied. The distribution of this presentation in certain jurisdictions may be restricted by law. Recipients of this presentation should inform themselves about and observe such restrictions. These slides do not constitute or form part of any offer for sale or subscription of or solicitation or invitation of any offer to buy or subscribe to any securities nor shall they or any one of them form the basis of or be relied on in connection with any contract or commitment whatsoever. 2

3 1. Economic overview 2. Spanish economy: not only about construction 3. Export sector: main positive support 4. Labour market adjustments 5. Real estate 6. Fiscal budget considerations 3

4 Economic contraction after an extended period of economic growth GDP (real terms, 2Q1995 = 1) GDP (real terms, 1Q28=1) 17 Between 1995 and 27, the Spanish economy grew at an annual rate of 3.6% 12 The economic downturn in Spain has not been more intensive compared to the Euro Zone Spain 98 Spain 11 Euro zone 96 Euro zone mar-8 jun-8 sep-8 dic-8 mar-9 jun-9 Source: Eurostat. The Spanish economy has consistently been expanding at a faster pace than the Euro zone Quarterly GDP numbers including 3Q9 4

5 Current situation: Rapid correction of imbalances Net lending (+) / borrowing (-) of the economy (Euros in million) Household savings rate (as % of the available gross income) -5, 18-1, -15, -2, -25, -3, -35, Source: Bank of Spain, INE. Bank of Spain: The elevated household savings rate already achieved could trigger a significant improvement in consumption once other economic uncertainties decrease 5

6 Current situation: Easing credit conditions Survey showing contraction in the credit supply to non financial corporations Survey of credit demand by non financial corporations Net % weighted of banks reporting % of banks stricter reporting lending stricter lending conditions 5 3 Large corporations 1-1 SMEs Net % weighted of banks reporting % of banks reporting increase in an increase in credit credit demand 3 SMEs 1-1 Large corporations Source: Survey to credit entities regarding banking credits (Bank of Spain). About 7% of the companies that applied for bank financing received all or part of requested amount in the first semester (ECB survey of companies regarding credit facilities) 6

7 Current situation: Reduced intensity of the recession GDP (QoQ in %) GDP 2T9 3T9 Household consumption Inv. in equipment Inv. in construction Exports Imports Recent data suggests a continued slowdown in the pace of the recession Retail sales in October was down -2.7% (YoY) compared to -3.4% (YoY) in the previous month Car production increased +5.7% (YoY) in October vs. +3.4% (YoY) in September Industrial production (work days adjusted) in October was down -9.2% (YoY) compared to -12.7% (YoY) in September Source: INE. 7

8 21: Gradual stabilisation of the economy Business confidence (by levels) and real GDP (YoY in %) Outlook for 21: GDP (rhs) Business confidence Consumer confidence (by levels) and private consumption (YoY in %) Private consumption (rhs) Consumer confidence Positive impact on activity due to: Economic measures taken (fiscal and monetary) year-to-date Better behaviour of the global economy Progressive normalisation of the financial markets and the gradual improvement in the availability of credit Positive impact on the purchasing power as a result of restrained inflation Unemployment will remain high and the public accounts will operate under elevated deficit levels Source: Bloomberg and European Commission. 8

9 1. Economic overview 2. Spanish economy: not only about construction 3. Export sector: main positive support 4. Labour market adjustments 5. Real estate 6. Fiscal budget considerations 9

10 Performance of the Spanish economy excluding construction During its expansion phase the Spanish economy performed ahead of the Euro zone even when excluding construction investments and the multiplier effects of construction on the overall economy GDP excluding construction investments (real terms, YoY %) GDP average growth excluding construction investments ( ) Source: AMECO. Spain Euro Zone Euro zone +2.4% Spain +3.5% 1

11 The role of investments in equipment Investments in equipment showed a very strong evolution during the economic expansion with a growth rate well above GDP Investment in equipment (real terms, YoY %) Average growth rates ( ) Source: AMECO. Spain EU Investment in equipment, Spain +7.3% Investment in equipment, UE % GDP, Spain +3.8% Investment in construction, Spain +6.% Source: AMECO. 11

12 The service sector has been the major growth driver During the last cycle, all the major sectors of the Spanish economy (agriculture, industry, construction and services) showed stronger growth rates compared to the European Union. The service sector was by far the most important contributor to the overall economic growth of Spain Supply. Constant prices as of 2. YoY in % (Average ) Agriculture & fisheries Industry Construction Services Spain EU Supply. Constant prices as of 2. Growth contribution (Average ) Agriculture & fisheries Industry Construction Services Spain EU Source: AMECO. 12

13 Tourism continues to be important, but its relative importance has been reduced Total tourism (domestic and foreign) represented 1.7% of the GDP in 27 versus 11.6% in 2. Foreign tourism represented 4.7% of the GDP versus 5.8% in 2 World's Top Tourism Destinations Ranking Source: World Tourism Organization. Million of tourists Market share France % Spain % USA % China % Italy % Final Tourist Demand (real terms, % YoY) GDP Final tourist demand Source: INE. * 13

14 1. Economic overview 2. Spanish economy: not only about construction 3. Export sector: main positive support 4. Labour market adjustments 5. Real estate 6. Fiscal budget considerations 14

15 Good performance of the export sector in recent years Compared to other major European countries, Spain has had a favourable trend in exports Spain s market share has remained stable in spite of economic globalisation and a reduced competitive advantage in pricing Exports (real terms, 2Q1995 = 1) Spanish companies exporting regularly (number of companies) , Outside the UE-27 In the UE , Spain Germany France Italy 15, Source: Eurostat. Source: Departamento de Aduanas. Exports represent 28% of Spanish GDP, similar to levels in France (27%) and Italy (25%) but below Germany (46%). 15

16 Spain has a strong presence in several aspects Ranked 5 th worldwide in FDIs in the last 3 years 7 th exporter of services worldwide 17 th exporter of goods worldwide Spanish direct investment outstanding abroad (as % of the GDP) Source: UNCTAD

17 The recovery in exports has begun First component of GDP to show positive quarterly growth Synthetic indicator of the export activity (ISAE) % of the companies expect that its portfolio of orders improves in the next 12 months In the last two quarters, exports were positive in quarterly terms Going forward, exports should be supported by the improvement in international trade Mar-7 Sep-7 Mar-8 Sep-8 Mar-9 Sep-9 Source: Ministerio de Industria, Turismo y Comercio. 3T9 2T9 Spain +2,3% +,6% Germany +3,4% -,8% France +2,3% +,6% 17

18 1. Economic overview 2. Spanish economy: not only about construction 3. Export sector: main positive support 4. Labour market adjustments 5. Real estate 6. Fiscal budget considerations 18

19 The labour market is experiencing an important adjustment The economic crisis is having a severe impact on the Spanish labour market: Most of the reduction in employment is affecting temporary workers As a result of recent developments, labour reform is being debated in Spain Unemployment compared to GDP Employees by contract (YoY in %) mar-7 Euro Zone GDP (YoY) Source: Eurostat. Spain Unemployment rate may-7 jul-7 sep-7 nov-7 ene-8 Euro Zone Unemployment rate Spain GDP (YoY) mar-8 may-8 jul-8 sep-8 nov-8 ene-9 mar-9 may-9 +1pp +2pp Jan-7 Jan-8 Jan-9 Source: INE. Unlimited Temporary Spanish unemployment increased from 8.% to 17.9% in 2 years while the unemployment in the Euro zone climbed from 7.3% to 9.3% whilst experiencing similar levels of GDP contraction 19

20 The relatively weaker performance of the employment figures is in large part due to the (labour intensive) construction sector Employment (1Q28 = 1) Employment excl. construction (1Q28 = 1) Mar-8 Jun-8 Sep-8 Dec-8 Mar-9 Jun-9 Spain Germany France Italy United Kingdom 9 Mar-8 Jun-8 Sep-8 Dec-8 Mar-9 Jun-9 Spain Germany France Italy United Kingdom Employment Occupationevolution % QoQ 2QQ8 3Q8 4Q8 1Q9 2Q9 Spain Germany France Italy United Kingdom Source: Eurostat (Labour force survey). Employment Occupation evolution evolution excl. excl. construction construction % QoQ 2QQ8 3Q8 4Q8 1Q9 2Q9 Spain Germany France Italy United Kingdom

21 Signs of stabilisation in the labour market: Employment excluding construction remained stable in the last quarter (3T9) In the third quarter of 29, employment fell by.4% QoQ. Excluding construction, employment would have remained almost unchanged. The unemployment rate remained stable at 17.9% Employment (QoQ in %) 2 1 Total Excl. construction Jun-8 Sep-8 Dec-8 Mar-9 Jun-9 Sep-9 Source: INE Employment in current and previous economic downturns (base 1 = peak previous to the recession) Trimestres Source: INE. 3Q/27 4Q/1991 4Q/

22 Spain can grow in spite of high level of unemployment History shows that Spain has been able to combine economic growth and high levels of unemployment Spain s employment as a percentage over total population is similar to that of France and Italy Historic comparison Spain vs. Euro zone Averages during the period (%) Employed vs total population (in %) Spain Euro zone Labour Force Survey GDP growth 3.9% 3.8% -1.1% Unemployment rate 17.% 1.3% 14.3% GDP growth 2.9% 2.2% -1.7% Unemployment rate 1.4% 8.5% 8.3% (2Q9) Spain 41.3 Germany 47.1 France 4.2 Italy 38.6 United Kingdom 46.7 Source: Eurostat. 22

23 Geographic distribution of unemployment shows important differences Regions representing 65% of the Spanish economy have an average unemployment rate of 14%, significantly below the country average 3% Unemployment rate (% of active population) 25% 2% 15% 1% Size: GDP ( m) Ceuta Madrid País Vasco Andalucía Islas Canarias Melilla Murcia Valencia Extremadura Cataluña Castilla La Mancha Castilla León La Rioja Asturias Galicia Aragón Cantabria Navarra Weight in the economy: 35% Unemployment rate: 23.3% Unemployment rate average: 17,93% Weight in the economy: 65% Unemployment rate: 14.% 5% 7% 9% 11% 13% 15% 17% Weight of construction (as a % of Gross Value Added) Source: INE. 23

24 1. Economic overview 2. Spanish economy: not only about construction 3. Export sector: main positive support 4. Labour market adjustments 5. Real estate 6. Fiscal budget considerations 24

25 Real estate: Not all construction is residential Part of the real estate boom in Spain is explained by demographic factors like immigration Investment in construction (in % of total) House prices vs Population (in %) 1% 9% 2 8% 7% 6% 5% 4% 3% 2% 1% Average housing prices variation ( ) BE GR IT NL PT AT FR MT ES DE IE % Accumulated population growth ( ) Source: AMECO. Residential Other Source: Eurostat and ECB. 25

26 Real estate: Newly constructed property in context Excess supply relates mostly to second residences (coastal areas) The regions of Madrid and Barcelona represented 14% of newly constructed properties during 26 and 27, while their contribution to the Spanish GDP was 32% Initiated houses(%) GDP contribution by areas (%) Rest of Spain 4% Barcelona 7% Madrid 7% Rest of Spain 37% Barcelona 14% Madrid 18% Costal areas (excl.barcelona) 46% Costal areas (excl.barcelona) 31% Source: Ministerio de Vivienda. 26

27 Real estate: Property transactions stabilizing The number of new and second hand property transactions is showing signs of stabilization in recent months Number of housing transactions (in ) Number of housing transactions (YoY in %) Second hand property transactions New property transactions mar- 4 sep- 4 mar- 5 sep- 5 mar- 6 sep- 6 mar- 7 sep- 7 mar- 8 sep- 8 mar- 9 sep- 9-5 ene-9 mar-9 may-9 jul-9 sep-9 Source: Ministerio de Vivienda. Source: INE. 27

28 Real estate: Initiated and finished property The number of housing starts has stayed below the number of housing completions since 27 The reduction in number of housing starts has continued in 29 and is now below the number of new housing sales New housing sales New housing starts New housing completions * Source: Ministerio de Vivienda. * June 29 data annualized. 28

29 Real estate: House prices and affordability Recent trends show a reduction in the pace of house price declines and an improvement in affordability House prices (% QoQ) -1 Theoretical affordability (post-tax, in %) Jun-8 Sep-8 Dec-8 Mar-9 Jun-9 Sep Source: Ministerio de Vivienda. Source: Bank of Spain. 29

30 Real estate: Lower interest rates are having a positive impact on households Spanish households are currently benefiting from the low interest rate environment due to the high percentage of floating rate compared to fixed rate mortgages Variable rate mortgages (in % of total) 1% Mortgage rates (in %) 9% 8% 7% 6% 5% 4% 3% 2% 1% % Spain Ireland Italy UK USA Source: European Mortgage Federation; OECD. France Germany Source: Bank of Spain. 3

31 1. Economic overview 2. Spanish economy: not only about construction 3. Export sector: main positive support 4. Labour market adjustments 5. Real estate 6. Fiscal budget considerations 31

32 Expansive fiscal policy in 28 and 29 The comfortable situation of the public finances ahead of the crisis offered room to manoeuvre in the implementation of a significant expansive fiscal policy Public debt (% of GDP) Fiscal stimulus actions (% of GDP) Spain Euro Zone Germany France Italy Source: European Commission. 1 Italy Holand France Source: Bank of Spain. EMU Germany United Kingdom USA Japan China Spain Russia Current estimates by the European Commission show that Spain will keep its public debt in relation to GDP below that of other major European countries 32

33 Fiscal stability targeted in the medium term First steps towards a contained budget deficit in the medium term: Increase in VAT as of second half of 21 Tax revenues represented 34% of GDP in 28 compared to 41% in the Euro zone Tax revenues (% of total) Indirect taxes Direct taxes Taxes on capital Social security taxes Euro zone 31,8 3,,6 37,5 Spain 28,9 31,6 1,2 38,3 Capacity (+) or need (-) to finance the public sector (en % del PIB) 26 2, 27 1,9 28-4,1 29-9,5 21-8, , , Source: Eurostat. Source: Ministerio de Economía y Hacienda. 33

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