QUARTERLY REPORT Global and Spanish economy 4Q-17 and outlook for 2018

Transcription

1 QUARTERLY REPORT Global and Spanish economy 4Q-17 and outlook for 2018 February 2018

2 GLOBAL

3 2017 GDP growth and forecasts for 2018 Growth extended across all geographic areas and exceeded expectations Real GDP growth(%) USA MEXICO LATIN AMERICA EUROZONE 1, BRAZIL AFRICA RUSSIA 1.8 1,7 CHINA GLOBAL Source: Círculo de Empresarios based on IMF, January

4 2017 Key facts Once again, a year marked by political uncertainty January-February March April-May June US exit from TPP agreement Art. 50 is activated Fed interest rate hike China s rating downgrade Macron: new president of France UK Elections Fed interest rate hike December October-November September August Trump s Tax reform Fed interest rate hike ECB announced QE reduction illegal referendum in Catalonia Fed announced balance sheet reduction NAFTA renegotiations Source: Círculo de Empresarios,

5 Forecasts for 2018 Strengths and risks Robust and synchronized growth Gradual withdrawal of monetary stimulus in advanced economies Political uncertainty remains High valuations in Financial markets Source: Círculo de Empresarios,

6 Positive behavior of global growth For the first time since 2010, the global economy exceeds the forecast of economic expansion % Countries with positive growth 54.5 December % 12% 42% 54 Expansion 50 level 58% 88% 97% Contraction Countries with positive growth Countries with negative growth GLOBAL PMI Source: Círculo de Empresarios based on FMI, JP Morgan, Markit,

7 Growth in advanced and emerging countries The acceleration of emerging countries growth reflects the recovery in commodity exporters Real GDP growth % Advanced Emerging Manufacturing PMI new maximum (December 2017) In parenthesis data of December Advanced (53.8) Forescast Emerging (51) Source: Círculo de Empresarios based on IMF, JP Morgan, 2018 Note: values above 50 indicates expansion 7

8 Geopolitical uncertainty The process of globalization continues although there are pockets of trade protectionism 1 Trans-Pacific Partnership (TPP) US leaves (January 2017) JAPAN TPP 12 (with USA) 38.3% global GDP TPP 11(without USA) The exit of US has not stopped trade negotiations 13.5% global GDP CANADA TPP Possible TPP 16 The potential incorporation of South Korea, Taiwan, Thailand, Indonesia and Philippines would generate earnings of 500 billion $ (higher than initial agreement with USA) MEXICO * Australia, Brunei, Chile, Malaysia, Peru, New Zealand, Singapour, Vietnam 2 3 NAFTA renegotiations worries Brexit trade consequences Source: Círculo de Empresarios,

9 Global inflation Inflation remained low, however... The 80% of OECD countries (+ China) are in full employment, which could lead to greater inflationary pressures for the next two years Unemployment and inflation rate OECD Wage growth Unemployment (% active population) Inflation (%) GDP dynamism Unemployment reduction Inflation potential growth Nevertheless, there are still deflationary forces such as aging population or low productivity which keeps wage growth in low levels Source: Círculo de Empresarios based on JP Morgan, 2018

10 China confirms a moderate slowdown The risks of a hard landing is reduced in 2018, but its level of total debt worries* Real GDP growth 1 Supply side reforms and symptoms of openness 2017: 6.8% 2018: 6.6% 2 3 Low intensity of industrial and real estate overcapacity Positive advance in services sector activity *IMF estimate that total debt will reach 300% of GDP in 2022 (actual: 230% PIB) Source: Círculo de Empresarios based on IMF and Vanguard,

11 Economic recovery in Latin America and Russia Argentina, Brazil and Russia exit recession Latin America Text goes here goes here goes here goes here goes here goes here goes here goes here goes here. Step 2 Step 3 Higher growth prospects for Mexico (due to US Text goes here goes here goes here goes here goes here goes here goes here goes here goes here. Text goes here goes here goes here goes here goes here goes here goes here goes here goes here. demand dynamism), Brazil s economic recovery and the upward cycle of commodities stimulate emerging countries growth Russia Growth better than expected in Russia due to higher oil prices, greater flexibility in exchange rate and fiscal stimulus Step 1 Step 2 Step 3 Step 1 Step 2 Text goes here goes here goes here goes here goes here goes here goes here goes here goes here. Source: Círculo de Empresarios based on World Bank,

12 US: upward economic forecast (I) The Tax Reform raises growth forecasts for 2018 Real GDP growth (%) (PMI: 54.3) (PMI: 55.1) Note: PMI data correspond to end of the year Source: Círculo de Empresarios based on IMF, January

13 US: Tax Reform impact (II) The US Senate approved Trump s Tax Reform Impact Reform Simplification of tax brackets from 7 to 4 Corporate Tax reduction from 35% to 20% GDP impact estimation between 0.06 and 0.36 points in the US economy in 2018 (Tax Foundation, Goldman Sachs, Joint Committee on Taxation, Wharton) Savings average for US citizens 1,610$ in 2018 (Tax Policy Center) Elimination of deductions The reform will add approximately 1 billion to debt in 10 years (Joint Committee on Taxation) Source: Círculo de Empresarios based on Joint Committee on Taxation,

14 US: prices stability (III) The economy and employment improvement (+171,000 average jobs created in 2017) reinforce the bullish expectations of inflation US inflation % annual change 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 Average inflation 50 years: 4.1% General Core Inflation forecast % annual change PIMCO estimates Source: Círculo de Empresarios based on BLS y PIMCO,

15 Jul-00 Jun-01 May-02 Apr-03 Mar-04 Feb-05 Jan-06 Dec-06 Nov-07 Oct-08 Sep-09 Aug-10 Jul-11 Jun-12 May-13 Apr-14 Mar-15 Feb-16 Jan-17 Dec-17 Fed: new interest rate rise The Fed raised interest rates in December to a range of % Federal funds rate % Powell (Effective in February 2018) Fed dot plot, 2018 (%) Greenspan Bernanke Yellen 4 3,5 3 expected hikes in , ,5 1 0,5 Source: Círculo de Empresarios based on Fed, September 2017 December 2017 Note: Each dot represents a governor s vote 15

16 Emerging Europe: stronger economic growth Main European emerging countries real GDP growth* % 5 4 Average EU 28 Emerging Europe Emerging Europe growth vs EU Hungary Poland Romania Czech Republic EU=100 0 Forecast Poland was the only country of the EU that avoid recession Inflation: 0.1% Unemployment : 5.3% % 4.3% 2.6% Forecast 4.1% Forecast The main economies of Emerging Europe grow at a faster pace than EU 28 *Average of the 4 main economies of emerging Europe: Poland, Romania, Czech Republic and Hungary Source: Círculo de Empresarios based on IMF, 2018

17 Eurozone: growth greater than expected The greater external demand boosts its economic activity Real GDP gowth (%) IMF forecast January IMF forecast January Source: Círculo de Empresarios based on IMF, January

18 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 UK: the rebound of inflation consolidates Brexit negotiations move to second phase in a scenario of higher inflation and lower growth in UK Monthly inflation rate % annual change Real GDP growth % 6,0 5, ,0 3,0 2,0 Inflation 2017 = 2.7% Referendum Brexit , ,0-1, Forecast Source: Círculo de Empresarios based on ONS, IMF,

19 Bank of England: rise in interest rates Bank of England raised the interest rates in November after inflation YoY was over 2% Bank of England official interest rate 7 % Exchange rate GBP / EUR 1,40 1,35 1,30 1,25 Brexit Brexit ,20 1,15 1,10 1, Source: Círculo de Empresarios based on Bank of England, Investing,

20 Italy: growth despite the uncertainty The Italian general elections will be held on March Real GDP growth % Italy 10 year borrowing costs(%) Political risk % Forecast Macroeconomic indicators (%) Private consumption Investment Exports Public debt % GDP Imports Source: Círculo de Empresarios based on Eurostat, IMF BBVA Research, Investing 2018

21 Jan-88 Sep-89 May-91 Jan-93 Sep-94 May-96 Jan-98 Sep-99 May-01 Jan-03 Sep-04 May-06 Jan-08 Sep-09 May-11 Jan-13 Sep-14 May-16 Jan-18 Commodities (I): Oil on rise In 2017, the medium price of Brent was 54 $/barrel, 10$ above 2016 Reasons for higher prices Stronger global economy 1 Brent barrel price ($) Brent Forecast 2018: [60$-70$ ] 135$ OPEC oil cuts $ US oil inventory reductions $ 0 Geopolitical tensions 4 Source: Círculo de Empresarios based on EIA y Bloomberg,

22 Commodities (II) Metals and energy prices recovered in 2017 Lowest level in 10 years Actual = Highest level in 10 years Bloomberg Commodity Index $ 88.17$ $ 48.63$ Agriculture $ $ 69$ Crude oil $ $ Industrial materials $ $ $ Note: Prices are represented by the appropriate Bloomberg Commodity sub-index Source: Círculo de Empresarios based on JP Morgan,

23 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan.-18 Currency market Since the beginning of 2017, dollar depreciation against its main trading partners Dollar exchange rate against a weighted basket of currencies* 1973= Maximums in 14 years Dollar against major foreign currencies, % -9% -4.2% -12% Includes euro, Canadian dollar, yen, pound, Swiss franc, Australian dolar and Swedish krona Source: Círculo de Empresarios based on St Louis Fed,

24 Financial markets Low financial volatility and US stock markets closed at records US Stock markets Jan 2017= Stock market performance, 2017 % S&P 500 DJIA Global 20.1 S&P Dow Jones 25.1 Nasdaq Eurostoxx Dax Cac Ibex Nikkei Korea Cmp Source: Círculo de Empresarios based on JP Morgan, CNMV,

25 SPAIN 25

26 2017 Review Economic activity remains solid (3.1% YoY), after several upward revisions of forecasts The strength of external sector + Tourism record 81.8 million of international tourist arrivals Improvement in business competitiveness Eurozone best annual performance since the financial crisis 2.5% (Real GDP growth 2017) Job creation (2.7% YoY) and falling unemployment rate to 16.55% Rising tax revenues (4.1% YoY) Jan. - Nov New loans and default rates (November 2017) New credit* +10.5% YoY Default rate -13.9% YoY to 8.07% of total credits * New consumption and housing loans for households and non-financial corporations Source: Círculo de Empresarios based on Bank of Spain, INE and Eurostat,

27 Forecasts 2018: recovery remains solid although growth slows Spanish macroeconomic outlook % annual change * Real GDP Final consumption Households PPAA GFCF Capital goods Construction Domestic demand (1) Exports Imports External demand (1) CPI (annual average) GDP Price Deflator Nominal GDP Employment Unemployment rate General government net lending/borrowing EDP (% GDP) Public debt EDP (% GDP) Current account balance (% GDP) (1) Growth contribution 3.3% 2016 IMF reduces Spain s growth forecasts from 2.5% to 2.4% due to political uncertainty, mainly in Catalonia 3.1% % 2018* Forecasts 2018 IMF (Jan.18) 2.4% Bank of Spain (Dec. 17) 2.4% European Commission (Nov. 17) 2.5% OECD (Nov. 17) 2.3% Government (Oct.17) 2.3% * Forecast Source: Círculo de Empresarios based on Afi and INE, January

28 Downside risks in 2018 Political uncertainty mainly in Catalonia Paralyzed structural reforms Structural unemployment High level of public debt Reduction of monetary stimulus by the ECB Effects of rising oil prices on domestic demand and on current account balance 28

29 Tailwinds Global and European economic recovery Employment creation 2 millions in 4 years Debt reduction Mainly by private sectorprivado Monetary policy and favourable financial conditions Spanish economy competitiveness From 2012 Non-energy trade surplus 29

30 Economic growth 2017 (I) 2017 GDP = 3.1% 2.5 pp growth contribution Domestic demand % annual change Private consumption = 2.4% Public consumption = 1% Gross fixed capital formation = 4.8% 0.6 pp External demand Goods and services % annual change Exports = 5.3% Imports = 4% growth contribution Source: Círculo de Empresarios based on Afi, January

31 Current economic growth (II) Spain maintains its growth above EU average, although the positive gap is narrowing The Spanish GDP growth follows the Manufacturing PMI trend Manufacturing PMI December In parenthesis December (55.3) Source: Círculo de Empresarios based on Markit, Eurostat and INE,

32 GDP growth and employment Spanish GDP has reached its pre-crisis level with a number of affiliates 3.8% below 2007 level Source: Círculo de Empresarios based on INE, January

33 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 Labour market (I) Active Population Survey Q (INE) 490,300 new jobs were created in 2017 and the unemployment rate dropped to16.55% (3,766,700 unemployed), more than 10 points below its maximum level of Q Employment and unemployment rate Q Q Thousand; % labour force Unemployment rate ,753, Employment 28, Q ,0 24,0 22, ,998,4 20,0 18,0 16,0 14, , ,0 10, ,0 Source: Círculo de Empresarios based on INE,

34 Labour market: public and private employment (II) 18.9 millions of employees Private sector 15.9 millions Public sector 3.0 millions Source: Círculo de Empresarios based on INE,

35 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-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Affiliates and unemployed 2017 in 2017 From its peak in February 2013 (5,040,222), unemployment rate has decreased by 1,627,441 persons. Affiliates to Social Security and unemployed Persons New permanent contracts in ,302,685 Affiliates ,040,222 18,460,201 Unemployed millions ,965,869 16,094,638 3,412, % conversions from temporary contracts January 2018 Unemployment increased by 63,747 persons to 3,476,528 Affiliates decreased by 178,170 persons to 18,282,031 Source: Círculo de Empresarios based on Ministry of Employment and Social Security, January

36 Unemployment rate in the UE and in Spain Spanish unemployment rate is twice as high as the Eurozone average Spain remains among the top 3 countries with the highest youth unemploymet rate (< 25 years) Greece 40.8% Spain 36.8% Italy 32.2% Source: Círculo de Empresarios based on Eurostat,

37 (F) 2017 (*) Pensions system Number of pensions, average pension and public expenditure in pensions have been increasing since 2007 Millions 2007 Jan Total Pensions Average pension Public expenditure in pensions / month Jan Retirement , % PIB Ratio contributor-pensionist Social Security revenues 5.3% in 2017 Pensionable ages Years after retirement 23.4 years Reserve Fund bn bn (vs in OECD) The Spanish Treasury might lend the government 15 bn to finance extraordinary pensions in 2018 Social Security deficit % GDP 1,5 0,8 1,0 1,0 1,1 1,3 1,3 1,0 0,7 0,7 0,5 0,0-0,5-0,2-0,1-1,0-1,0-1,1-1,0-1,5-1,2-1,6-1,4-2,0 * target Stabiliy Programme Source: Círculo de Empresarios based on Ministry of Employment and Social Security, January

38 Prices: CPI slowdown December CPI = 1.1% In January 2018, estimated CPI is 0.5%, its lowest level over the last 16 months, due to electricity prices drop Prices are rising below the Eurozone average after 13 months maintaining a positive gap. Source: Círculo de Empresarios based on INE and Eurostat,

39 Real state market Since 2015 housing prices and investment are recovering Construction investment % annual change 15,0 10,0 5,0 0,0-5,0-10,0-15,0-20,0-25,0 Construction investment Housing investment Other Rent prices 2017 By regions Source: Círculo de Empresarios based on INE and Eurostat,

40 Financial conditions Low interest rate environment keeps driving new financing operations Between Jan. and Nov. 2017, small and medium companies received most part of new loans to companies (< 1 million ) Source: Círculo de Empresarios based on Bank of Spain,

41 Public accounts Jan. Nov. 2017: tax revenues amounted to bn (+4.1% YoY) Forecast bn (+7.9% YoY) 4,0 2,0 0,0-2,0-4,0-6,0-8,0 0,0 2,0 General government net lending/borrowing and public debt % GDP Debt Net lending/borrowing ,0 100,0 80,0 60,0 40,0 20,0 0,0 Deficit targets General Government Regional Administrations Local Entities Social Security Total PPAA * Private sector debt Total 138.4% Households 61.8% Non-financial corporations 76.6% Source: Círculo de Empresarios based on Ministry of Economy, Industry and Competitiveness,

42 Spanish position within international trade Spain ranks among the top 5 goods exporters Share in world total exports 1 China USA Germany Japan Netherlands SPAIN 1.8 Share in world total exports (Spanish exports / world exports), % Source: Círculo de Empresarios based on Ministry of Economy, Industry and Competitiveness, January

43 Exports Imports External sector Trade balance, January November 2017 (% annual change) Exports 9.1% 255,155.1 M Imports 11.1% 277,849.2 M BALANCE Deficit 39.2% -22,694.2 M 31.1% energy deficit Top 3 sectors (% of the total) Capital goods Food Automotive industry Capital goods Chemical products Energy Geographical distribution (% to the total) Exports Imports Europe EU America Asia China Africa Other Source: Círculo de Empresarios based on Ministry of Economy, Industry and Competitiveness, January

44 Energy: higher trade balance deficit due to higher oil prices Spain Energy dependence (72.3%) Almost 20 points above EU28 average oil prices, due to: demand in the context of global growth Supply restrictive policies Geopolitical conflicts supply of shale oil due to natural disasters The increase in oil prices affects trade deficit ( imports value) and private consumption Source: Círculo de Empresarios based on EIA, Bloomberg, Eurostat and Club Español de la Energía, 2017 and

45 Tourism Tourism strength 2017 Main countries of origin Main destinations UK 18.8 millions Catalonia 19 millions Germany 11.9 millions Canary I millions France 11.2 millions Balearic I millions 2017 Record in tourists arrivals 81.8 millions 8.6% YoY Record in tourism expenditure 86,823 millions 12.2% YoY Spain might be in the 2 nd place in the international ranking, following France and above USA Source: Círculo de Empresarios based on INE and Turespaña,

46 Spanish business sector January 1st, 2017, 3,282,346 companies in Spain Companies by size % to the total Micro (0-9) Small (10-49) (Eurostat forecasts) Medium (50-249) Large (> 250) Micro (0-9) Small (10-49) Medium (50-249) Large (> 250) Spain Germany France Italy Portugal United Kingdom In 2017 Q4, the creation of companies in Spain fell by 3.8% (21,763 new corporations). In 2017 it decreased by 7.2% ( new business) 2017 Q4 Bt region % annual change Total -3, Source: Círculo de Empresarios based on INE and Eurostat,

47 Corporates in Catalonia Companies whichhave moved their headquarters out of Catalonia between Oct. 1 st, 2018 and Dec. 31 st ,208 Between October the 1st and February 2018, 3,220 companies moved their headquarters out of Catalonia (85% of its market capitalization). The companies that have moved their headquarters = 40% of its regional GDP The creation of corporations in Catalonia decreased in November by 19% compared with the same month of 2016 (vs. -2% at a national level) Source: Círculo de Empresarios based on INE,

48 Interest rates and risk premium The risk premium is again below 90 bp, in minimum levels over the last 3 years Fitch: Spanish credit rating BBB + (positive) A- (stable) Spanish 10 year yield < 1.40%. German 10 years yield to around 0.73%. Source: Círculo de Empresarios based on Bank of Spain,

49 Financial markets: Ibex 35 Ibex 35 closed 2017 with annual gains of 7.4% 2017 annual gains Closing Gains IBEX ,9 7,40% IBEX 35 WITH DIV ,6 11,25% IBEX 35 MEDIUM CAP ,0 3,97% IBEX 35 SMALL CAP 6.580,2 31,44% Source: Círculo de Empresarios based on BME and Investing,

50 Spain s position in international rankings Global Gender Gap Index 2017 (144 countries) 2018 Innovation Index (50 countries) Doing Business 2018 (119 countries) 1 Iceland 1 Korea 1 N. Zealand 2 Norway 2 Sweden 2 Singapore 3 24 Finland SPAIN 5 ( vs. 2016) 3 29 Singapore SPAIN = (vs. 2017) 3 28 Denmark SPAIN 4 (vs. 2017) Source: WEF, Nov Source: Bloomberg, 2018 Source: World Bank, 2017 Golden Age Index (34 OECD countries) Global Entrepreneurship Index 2018 (137 countries) 2017 International Tax Competitiveness Index (35 countries) 1 Iceland 1 USA 1 Estonia 2 N. Zealand 1 Switzerland 2 N. Zeleand 3 25 Israel SPAIN = (vs. 2016) 3 34 Canada SPAIN 1 (vs. 2017) 3 28 Switzerland SPAIN = (vs. 2016) Source: PwC, 2017 Source: GEDI, 2017 Source: Tax Foundation,

51 The quarterly report, is a publication of the Círculo de Empresarios produced by its Department of the Economy, contains information and opinion from reliable sources. However the Círculo de Empresarios does not guarantee its accuracy and does not take responsibility for any errors or omissions. This document is merely informative. As a result, the Círculo de Empresarios is not responsible for any uses that may be made of the publication. The opinions and estimates of the Department can bemodified without any warning.