Previsions Macroeconòmiques. Macroeconomic scenario for the Catalan economy 2017 and June 2017

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1 PM Previsions Macroeconòmiques Macroeconomic scenario for the Catalan economy 2017 and 2018 June 2017

2 Previsions macroeconòmiques Macroeconomic scenario for the Catalan economy June 2017 ISSN: Government of Catalonia. Ministry of the Vice- Presidency and of the Economy and Finance This work is subject to an Attribution-NonCommercial- Noderivs Creative Commons license. Licence summary: Full license: Edited by Directorate General for Economic Analysis Passeig de Gràcia, Barcelona Graphic design Enric Jardí

3 The economic environment This year, the state of the world economy presents a slight improvement, with economic activity projected to pick up pace. The IMF outlook published in April forecasts world GDP growth of 3.5% in 2017 and a tendency for this expansion to increase in coming years. The emerging and developing economies are those that are experiencing the most moderate growth compared to the pre-crisis years. This is due, basically, to the slowdown in Chinese growth and the problems suffered by the economies of Russia, Brazil and other commodity exporting countries. Despite this downturn, however, the emerging and developing countries continue to drive world growth, with expected rates of 4.5% in 2017 and 4.8% in 2018, thanks, precisely, to the fact that some of these negative circumstances have been reversed, at least partially. GDP development (% annual change) (f) 2018 (f) World Advanced economies Euro area Emerging and developing economies Source: IMF. In the cases of the advanced economies, after the 2016 slowdown (to 1.7%), recovery is expected, with 2.0% growth expected, both this year and in This improvement is accounted for, mainly, by expectations of increased growth in the USA (2.3% in 2017 and 2.5% in 2018, compared to 1.6% in 2016) generated by the good performance of the employment market and the expansionary fiscal policies announced by the US Executive. Unlike its forecast for USA, however, 3 Previsions Macroeconòmiques June 2017

4 the IMF does not foresee substantial changes in the Eurozone, despite the continuation of a clearly expansionary monetary policy (though this is expected to be reined in somewhat in 2018). Projected growth in the Eurozone is 1.7% for 2017 (one decimal point lower than in 2016) and 1.6% in Japan is expected to maintain moderate growth in 2017, only for this upturn to be reversed in However, it should be noted that Bank of Japan projections are a little more optimistic than those of the IMF. Forecasts for the international economy (% annual change) GDP (f) 2018 (f) World economy Advanced economies Emerging and developing economies Euro area USA Japan China India Russia Brazil World trade of goods and services (volume) Oil price (in USD) (f) Forecast. Source: IMF (April 2017). Although, globally speaking, the international panorama presents a more positive outlook for this year, uncertainty continues to exist in practically all economic areas. In fact, although the IMF predicts that world trade will increase above GDP, both in 2017 (3.8%) and in 2018 (3.9%), US announcements of protectionist measures could temper these optimistic forecasts. In the European economy, the negative effects of Brexit have already started to be discounted: according to OECD predictions published in early-june, the UK s GDP will slow down to 1.6% growth in 2017 and just 1% in The European Union in general and the Eurozone in particular are undergoing moments of great tension caused by weak growth, terrorist attacks and migratory movements. All this is reflected in political changes within Member States and in the way that countries currently envisage the future European project. 4 Previsions Macroeconòmiques June 2017

5 GDP forecasts for euro area countries (% annual GDP change) (f) 2018 (f) Estonia Finland Slovakia Luxembourg Germany Belgium Austria Malta Netherlands Slovenia France Cyprus Italy Spain Ireland Portugal Greece Latvia Lithuania Euro area European Union (f) Forecast. Source: European Commission (May 2017). Brexit is the clearest manifestation of all this, but it is not the only one, as the very concept of the EU is now under the microscope. At present, as previously mentioned, no changes are expected in Eurozone growth rates. The European Commission s May forecast coincides with the IMF outlook for 2017 (growth of 1.7%) but is a little more optimistic for 2018 (1.8%). However, it should be noted that very different situations are found side by side within the Eurozone. Countries like Ireland, Malta, Luxembourg, Slovenia and Latvia will grow by more than 3% in 2017, but the results are not expected to be so positive in the larger economies. In the case of Germany, a slowdown is expected (growth falling from 1.9% in 2016 to 1.6% in 2017), followed by an improvement (up to 1.9% in 2018). In France, the economic dynamic continues to be weak, although the Commission expects improvement in the future, from 1.2% growth in 2016 to 1.4% in 2017 and 1.7% in In Italy, the forecasts for 2017 do not show any changes to the 5 Previsions Macroeconòmiques June 2017

6 weak growth seen in 2016 (0.9%), with a slight improvement in 2018 (1.1%). In this context, the Spanish economy stands out for growth that is higher than in the other large economies, though this expansion is expected to slow down, both in 2017 (to 2.8%) and in 2018 (to 2.4%). All this reveals a substantial divergence in the cyclical behaviour of countries in the Eurozone, although they all share factors favourable to growth, such as low oil prices (despite the rise in 2016), competitive euro exchange rates and extraordinary monetary policy measures, all within a context of very low interest rates. Spain forms part of the group of Eurozone economies that have enjoyed the best results since This is due, firstly, to improvements to the competitiveness of the economy, which has incentivised exports, and, secondly to falling interest rates and oil prices, which have helped to boost the recovery of internal demand, a factor that had been greatly weakened by the crisis. As the results for the first months of the present year show, although the expected results for 2017 are lower than those for 2016, the Spanish economy continues to maintain considerable vitality. Macroeconomic scenario for the Spanish economy (f) 2018 (f) GDP % change in volume Domestic demand contribution to GDP growth Household consumer expenditure % change in volume Public administration consumer expenditure % change in volume Gross fixed capital formation % change in volume External balance contribution to GDP growth Exports of goods and services % change in volume Imports of goods and services % change in volume Jobs created 1 % change Estimated unemployment rate (EPA) unemployed / active population (%) (f) Forecast. 1 In terms of full-time equivalent. Source: Spanish government. Ministry of Economy, Industry and Competitiveness (April 2017). The official forecasts for the Spanish economy were recently revised upwards, and indicate more positive results than previously expected, an optimism also noted in the predictions announced by other state and international bodies. For example, the April forecast published by the Ministry of Economy foresees growth of 2.7% in This figure is slightly higher than that indicated in the IMF s April outlook (2.6%), but below that of the Bank of Spain (published in March) and the European Commission (of the month of May), which both predict growth of 2.8%. Official forecasts for 2018 point to growth of 2.5%, a slightly more optimistic figure than those from other sources. 6 Previsions Macroeconòmiques June 2017

7 Forecasts for the Spanish economy (% annual GDP change) Ministry of Economy, Industry and Competitiveness (April 2017) (f) 2018 (f) Bank of Spain (March 2017) IMF (April 2017) European Commission (May 2017) Source: INE, Ministry of Economy, Industry and Competitiveness, Bank of Spain, IMF and European Commission. Forecasts for the Catalan economy The prospects for the Catalan economy in 2017 and 2018 should be seen within an international context that is rather more positive than in Nevertheless, the economy in surrounding European countries continues to be weak, even if prospects look somewhat brighter than they did a few months ago. This recent increase in optimism is supported by an accommodating monetary policy which, according to the ECB, will continue, with extraordinary measures, throughout the rest of the year. The economic environment, characterised by exceptionally low interest rates, is helping to boost consumption and investment and, in short, growth, in Catalonia. Growing world trade is a particularly positive factor for the Catalan economy, which is very open to foreign markets. Moreover, the more reputable sources do not predict substantial changes in oil prices, which will remain moderate, despite the increases seen a few months ago by the OPEC deal to cut output. In this favourable situation, the Catalan economy looks set to grow in 2017, as confirmed by the indicators available for the opening months of the year. The current forecast of the Ministry of the Vice-Presidency and of the Economy and Finance is for average growth of 2.9% in 2017 and 2.6% in 2018, continuing the expansionary cycle that the Catalan economy entered in These forecasts are similar to those announced in April by Barcelona Chamber of Commerce (2.8% in 2017 and 2.4% in 2018) and by the BBVA in May (3% 2017 and 2.7% in 2018). 7 Previsions Macroeconòmiques June 2017

8 Macroeconomic forecasts for Catalonia (f) 2018 (f) GDP % change in volume GDP millions of euros 223, , ,104 Domestic demand contribution to GDP growth Household consumer expenditure % change in volume Public administration consumer expenditure 1 % change in volume Gross capital formation 2 % change in volume External balance contribution to GDP growth Foreign trade balance contribution to GDP growth Exports of goods and services % change in volume Imports of goods and services % change in volume Balance with the rest of Spain contribution to GDP growth Jobs created 3 thousands Jobs created 3 % change Estimated unemployment rate (EPA) unemployed / active population (%) (f) Forecast. 1 Includes consumption expenditure of non-profit institutions serving households. 2 Includes stock variation. 3 In terms of full-time equivalent. Source: Catalan Government. Ministry of the Vice-presidency and of the Economy and Finance. Domestic demand will continue to be the main growth factor, accompanied by positive input from external demand. According to current forecasts, domestic demand will generate 82.7% of growth (2.4 percentage points), while the remaining 17.3% (0.5 percentage points) will come from external demand. In 2018, external demand will gain in weight, accounting for 19.2% of GDP growth, and domestic demand will generate the remaining 80.8%. These forecasts indicate more balanced growth by the Catalan economy thanks, in the main, to the good performance of exports of goods and services, which will amply compensate for the increase in imports generated by rising domestic demand. The behaviour of foreign trade will make a positive contribution of 0.4 percentage points both in 2017 and in 2018, while the contribution of trade with the rest of the State will continue to be positive, though more moderate (0.2 and 0.1 percentage points, respectively). As regards the expected behaviour of domestic demand, growth in gross capital formation is expected to be particularly notable, with increases of 4.5% in 2017 and 4.3% in Growth in investment, particularly in capital goods, is among the most positive facets in the evolution of the Catalan economy in recent years: gross capital formation in capital goods and other assets rose by 17.3% over the period from 2013 to After a slump lasting years, moreover, 8 Previsions Macroeconòmiques June 2017

9 investment in construction has also enjoyed positive growth since Forecasts also point to household consumer expenditure becoming more moderate in 2017, continuing a trend that began in 2016: predictions indicate growth of 2.5% in the current year and 2.1% in This trend towards moderation in consumption is explained, partially, by the gradual levelling of consumer volume (in constant values) to pre-crisis levels. Accordingly, the high growth rates recorded in 2015 and, to a lesser extent, 2016, should be placed within the context provided by comparison with the sharp decreases accumulated in previous years. Finally, consumption expenditure by the public administrations is expected to grow by 1.6% in 2017 and 1.4% in Growth in the Catalan economy will find its correlation in growing employment (evaluated in terms equivalent to full-time). Employment is expected to rise by 2.6% in 2017 and 2.4% in 2018, the equivalent of 80,300 and 76,000 new jobs respectively, resulting in unemployment rates of 13.5% in 2017 and 11.6% in Previsions Macroeconòmiques June 2017