Spanish economic outlook June 2017
1 2 3 Spanish economy a pleasant surprise Growth drivers Forecasts once again bright
One of the most dynamic economies in Europe Spain growing at a faster rate than EMU over last three years 0.8% 3
Job creation rates on the up... Number of Social Security registered members returns to 2009 levels 3.8% 2.3% 4
... while high unemployment rate falls Decrease in active population also a factor -2.2 pp 5
Household consumption remains buoyant Greater consumer confidence following political uncertainty in 2016 6
Housing market recovery gaining strength Rising demand driving up new house building +15% 1Q 17 +19% 1Q 17 7
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 y/y rate of change % Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 y/y rate of change % Spanish economic outlook June 2017 Sharp rise in lending to households 50 40 New loans to house purchase 27.2% New loans to households (2007 = 100) 30 20 120 Total 10 0 100 Housing -10 Consumption -20 80 New consumer loans 60 63.6 45 40 35 Credit card Loans 29.8% 40 39.9 35.0 30 25 20 20 15 20.6% 10 0 5 0 Source: Bank of Spain and Bankia Research 8
Notable uptick in business turnover Growth rates accelerating since mid-2016 9
Signs of a rise in business spending also evident Decisions pushed back in 2016 now starting to be acted upon 10
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 y/y rate of change % Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 y/y rate of chane % Spanish economic outlook June 2017 Credit starts flowing to businesses once again New loans to SMEs 20 13.8% New credits to non-financial corporations (2007 = 100) 10 120 Total 0 100 SMEs -10 Large firms 80 New loans to large firms 60 60 40 39.7% 40 49.2 33.9 20 0 20 27.7-20 -40 0-60 Source: Bank of Spain and Bankia Research 11
Surge in tourism key to Spanish economy Country remains attractive to tourists compared to competing destinations 12% 6% 12
Spike in inflation has hit its peak Trend shaped by energy prices Main downsides stem from effect on competitiveness and on purchasing power of households. The other side of the coin is the effect on nominal GDP growth and therefore, tax receipts and deleveraging. 13
How is the Spanish economy performing? Inflection point not yet reached, raising growth forecasts Spanish economy is not only not slowing down, it is actually gaining strength Rate of job creation is on the up Expectations and confidence indicators are improving Tourism sector continuing to have a very positive impact Exports are increasingly buoyant and rising faster than imports Spending decisions that were delayed due to uncertainty are now being acted upon Property sector recovery is gathering pace Demand for finance has reignited Downside risks are waning 14
1 2 3 Spanish economy surprisingly upbeat Growth drivers Forecasts once again bright
More balanced composition of growth All components of GDP are contributing positively to growth, and the countercyclical nature of external demand has been broken 16
More robust growth figures Initial boost came from exports GDP has returned to 2008 levels, although the share of each component has changed. Excessive share of construction and imports has been corrected. 17
Leading to highest current account surplus on record... Although high level of external debt means country is still extremely vulnerable 2.1% of GDP 85.7% 18
... thanks to an improvement in competitiveness... Reflected in the increased share of world exports of merchandise 19
... and efforts to internationalise Renewed push to ramp up exports, which had been curtailed over the last decade 20
Financing capacity has allowed progress to be made in reducing high levels of debt Private sector has done much to degear 21
Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 % of GDP y/y rate of change % Spanish economic outlook June 2017 Deleveraging process reaching its conclusion Outstanding stock of loans continues to shrink, albeit at an increasingly moderate rate, while rate of new lending is on the up Loans. Households & Non-financial corporations Spain Italy Germany France Euro area Loans. Households & Non-financial corporations Total Non-Financial corporations Households 200 150 100 170-640 billion 107 90 5 0-5 -10-15 Last 12 months -1.4-3.4-2.2-4,6-3.3-6.1-20 50-25 Source: BCE & Bankia Estudios Source: BdE & Bankia Estudios 22
Major impact of drop in debt servicing costs, especially for businesses Greater fall in interest paid than interest received Compared to 2008, interest paid by households has decreased by 34.7 billion, while they received 26.54 billion less in interest. Over the last eight years, businesses interest payments have fallen by over 48.7 billion, compared to a reduction in interest received of just 5.766 billion. 23
Progress made and challenges ahead after a deep, drawn out crisis Flow variables brighter, although certain stock measures remain weak More balanced growth Greater competitiveness Internationalisation of business Foreign trade surplus Degearing of private sector Correction of budget deficit Cleaning up of financial sector High unemployment rate, especially among young people Notable salary cuts Slow improvement in productivity High level of external debt Structural public debt Structural imbalance in pension system 24
1 2 3 Spanish economy surprisingly upbeat Growth drivers Forecasts once again bright
Forecasts once again bright Upward trends The satisfactory tone of the latest indicators is steering forecasts upwards. If risks abroad do not have a negative impact on the global economy, GDP may grow at a faster rate than was projected in the near term. 26
Are drivers being undervalued? Keys to dynamism of Spanish economy Risks prevailing, but with limited impact at present Global growth scenario brighter Boost from tourism due to heightened geopolitical risks in competing destinations Signs of constrained investment and consumption Impact of interest rate cuts on financing cost Climate of domestic and foreign political uncertainty Protectionism and growth in world trade Brexit Monetary policy (ECB tapering) Greater competitiveness and less elasticity of imports than domestic demand 27
We envisage the upswing to continue Although the rate of recovery will slow as a number of temporary drivers are offset 3.2% 2.9% 2.5% y/y 2015 2016 2017 (p) 2018 (p) Households consumption 2,8% 3,2% 2,6% 2,2% General Government consumption 2,0% 0,8% 1,2% 1,3% Gross Fixed Capital Formation 6,0% 3,1% 3,8% 4,1% Equipment 8,9% 5,0% 5,3% 5,0% Construction 4,9% 1,9% 3,2% 3,5% Domestic demand contribution (pp) 3,3 2,8 2,4 2,2 Exports 4,9% 4,4% 5,0% 4,2% Imports 5,6% 3,3% 3,8% 3,8% External demand contribution (pp) -0,1 0,5 0,5 0,3 Real GDP 3,2% 3,2% 2,9% 2,5% Nominal GDP 3,7% 3,6% 4,7% 4,5% Inflation (yearly average) -0,5% -0,2% 2,2% 1,6% Employment 3,0% 2,9% 2,6% 2,2% Employment (y/y thousands, 4Q) 492 463 475 355 Unemployment rate (yearly average) 22,1% 19,6% 17,2% 15,2% (p) Bankia Estudios forecasts. 28
Key household consumption factors Strong employment growth Increase in household wealth Favourable forecasts Low interest rates Postponed spending decisions now being acted upon Slower uptick in disposable income Loss of purchasing power due to rising inflation Need to continue deleveraging...... and re-establish low savings rates 29
Key investment factors Favourable borrowing conditions Brighter demand forecasts Projects postponed in 2016 now being started Acceleration of housing segment Greater tax burden on businesses Sluggishness of public works activity Greater contribution of intangible investment Greater use of production capacity 30
Key external demand factors Dynamism of global markets Internationalisation of business Competitiveness gains Favourable exchange rate Boost from tourism Decent sales of other services Loss of competitiveness due to second period of rising inflation Brexit Potential rise in protectionism Oil price hike Imports replaced by national output 31
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