Short-term indicators and Updated Forecasts Eurozone NOVEMBER 2016
EUROZONE WATCH NOVEMBER 2016 Key messages: resilience and unchanged projections The moderate pace of economic growth continued in the eurozone in (+0.3% QoQ), in a context of improved external demand in the quarter and showing resilience after the uncertainty experienced by mid-year. Improving soft data so far in 4Q16 suggest that the recovery could gain some momentum, though we remain cautious about it due to political uncertainties in coming months. Inflation is picking up as expected, given the energy prices base effects, but core measures remain subdued. We continue to expect inflation to remain clearly below the ECB target in the forecast horizon. Supportive economic policies and ECB with little room for further action: the most likely option is the extension and fine tuning of QE, though this could be delayed to early 2017. Fiscal policy will continue to be slightly supportive, but with heterogeneity across countries. Unchanged forecasts: we maintain our GDP growth projection for the eurozone at 1.6% and 1.5% in 2016 and 2017, respectively. Nonetheless, some changes were made at country level, with higher dynamism in Germany and Spain offset by lower prospects in France and Italy. Risks remain tilted to the downside and are related mostly to political issues, both at national and regional level, but derive also from financial sector fragilities in some specific countries. 2
ECONOMIC DEVELOPMENTS: STEADY RECOVERY RESILIENT TO POLITICAL UNCERTAINTY NOVEMBER 2016
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 4Q16 EUROZONE WATCH NOVEMBER 2016 SECTION 1: ECONOMIC DEVELOPMENTS GDP growth steady in 3Q. We expect it to remain broadly stable during coming quarters GDP, CONTRIBUTION BY COMPONENTS (%QoQ, pp) GDP AND MICA FORECASTS (%QoQ) 2 1 0-1 -2 0.3 1.0 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6 Imports Change in inventories Public consumption Real GDP Exports Gross fixed capital formation Private consumption CI 20% CI 40% CI 60% Observed Flash estimate for GDP growth showed a stable recovery in, posting a +0.3% QoQ figure. Overall consumption will continue to be the main contributor to GDP growth Machinery and equipment is the main driver of investment growth together with inventories Concerns are related to a weak fixed investment recovery, but we are positive for 4Q16 figures Improving soft data in October suggest that the recovery could gain some momentum in 4Q16 4
Germany France Italy Spain EUROZONE WATCH NOVEMBER 2016 SECTION 1: ECONOMIC DEVELOPMENTS Germany decelerated but France and Italy returned to growth in 3Q GDP, CONTRIBUTION BY COMPONENTS (%QoQ, pp) 2,0 1,5 1,0 0,5 0,0-0,5-1,0-1,5-2,0 0,2 0,2 0,3 Germany France Italy Spain Difference GDP level relative to 2008 Private consumption Public consumption Gross fixed capital formation Change in inventories Exports Imports Real GDP Eurozone GDP 0,7 10 8 6 4 2 0-2 -4-6 -8-10 France and Italy returned to growth in with GDP increasing 0.2% and 0.3% QoQ respectively. The former mainly driven by inventory investment (+0.3% QoQ) and public consumption (+0.4% QoQ), while private expenditure remained flat in the quarter In Germany growth slowed further in (+0.2% QoQ), apparently due to lower contribution from external demand. Growth should be mainly driven by domestic demand components, despite a possible decline in machinery and equipment investment Spain continues to outperform the region showing a preliminary GDP increase of 0.7% QoQ in 5
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 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 EUROZONE WATCH NOVEMBER 2016 SECTION 1: ECONOMIC DEVELOPMENTS Industrial production recovered in 3Q despite high volatility INDUSTRIAL PRODUCTION (%QoQ, pp) 104 103 102 101 100 99 98 97 IP (level) 0.8 IP (% QoQ) -0.3 0.4 1.5 1.0 0.5 0.0-0.5-1.0 IP CAPITAL, INVESTMENT IN MACHINERY AND EQUIPMENT AND UTILIZATION CAPACITY (%QoQ, %) 4 3 2 1 0-1 -2-3 -4 Inv. M&E, IP capital (% QoQ) Capacity utilization (%) 84 83 82 81 80 79 78 IP (2012=100) IP (% QoQ) Investment M&E (% QoQ) Capacity Utilization (%) IP Capital (% QoQ) Industrial production declined in September by 0.8% MoM after an increase of 1.8% MoM in August, closing with an overall growth of 0.4% QoQ (-0.3% in ) The recovery in was widespread across sectors, mainly in the production of capital goods (+0.4% QoQ) and consumer durables (+0.1% QoQ), suggesting a recovery in equipment and machinery investment 6
EUROZONE WATCH NOVEMBER 2016 SECTION 1: ECONOMIC DEVELOPMENTS Industrial output growth for 3Q was observed across most countries INDUSTRIAL PRODUCTION (%QoQ, pp) 3 2 1 0-1 -2-3 0.2 IP (% QoQ) -0.1 1.1 0.4 3.3-0.3-0.1 IP (level) 0.2 0.3 0.4 112 110 108 106 104 102 100 98 96 94 92 90 88 Germany France Italy Spain Portugal Austria Belgium Finland Netherlands IP (% QoQ) IP (2012=100) 7
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 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 EUROZONE WATCH NOVEMBER 2016 SECTION 1: ECONOMIC DEVELOPMENTS Exports rebounded slightly in 3Q while imports suggest some improvement in domestic demand TRADE BALANCE ( bn, %GDP) EXPORTS CONTRIBUTION BY DESTINATION (%QoQ, pp) 180 175 170 165 160 155 150 145 140 Exports, Imports & trade balance ( bn) 0,5 0,5 0,7 0,8 Trade balance (%GDP) 0,9 0,9 1,2 1,0 0,8 0,6 0,4 0,2 0,0 3 2 1 0-1 -2-3 -4 Trade balance ( bn) Exports Imports Trade balance (%GDP) Other EU countries China LatAm Total Exports United States Asia (excl China) Rest of world 8
Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 EUROZONE WATCH NOVEMBER 2016 SECTION 1: ECONOMIC DEVELOPMENTS Retail sales grew moderately in 3Q despite recent monthly declines RETAIL SALES AND CONSUMER CONFIDENCE (%QoQ, pts) 1.5 1.0 0.5 0.0-0.5-1.0-1.5 Retail Sales (% QoQ) 0.2 0.7 Consumer Confidence 0.3 0.3 0-5 -10-15 -20-25 -30 RETAIL SALES AND TOTAL WAGE BILL (%YoY) 4 3 2 1 0-1 -2-3 -4-5 Retail Sales (% QoQ) Consumer Confidence Salaried employment Total wage bill Real compensation Retail sales Retail sales grew 0.3% QoQ in despite monthly declines in September and August figures (both -0.2% MoM) Weakness is observed in non-food consumption and durables Nonetheless, overall data continues to suggest a positive contribution to private consumption, similar to previous quarter, which adds to stable confidence 9
3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 EUROZONE WATCH NOVEMBER 2016 SECTION 1: ECONOMIC DEVELOPMENTS Employment grew at a steady pace over the past year, while the labour force growth accelerated JOB GROWTH CONTRIBUTION BY COUNTRY (pp, %QoQ) LABOUR FORCE GROWTH BY GENDER CONTRIBUTION (pp, %QoQ) 0,4 0,3 0,2 0,1 0,0-0,1-0,2-0,3-0,4 1,2 1,0 0,8 0,6 0,4 0,2 0,0-0,2-0,4 Germany France Italy Spain Others Total Male labour force Female labour force Labour force Slightly lower employment growth contribution from core countries in, but higher from the periphery The composition has recently tilted to higher selfemployment Nonetheless, in a recovery environment, higher growth of labour force was observed during 1H16 10
Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 EUROZONE WATCH NOVEMBER 2016 SECTION 1: ECONOMIC DEVELOPMENTS Unemployment rate has stabilized in recent months, but continues to decline in Spain UNEMPLOYMENT RATE BY COUNTRY (%) 25 20 15 10 5 ANNUAL UNEMPLOYMENT CHANGE BY GENDER & AGE (millions) 1,0 0,5 0,0-0,5-1,0-1,5-2,0 0 Sep-15 Aug-16 Sep-16 Eurozone Germany France Italy Spain Women 25-74Y Men 25-74Y Men < 25Y Women < 25Y Total Jobless rate continues to fall at a low pace, driven mostly by Spain But a slower decline in unemployed was observed in among the experienced population, mainly women 11
May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 EUROZONE WATCH NOVEMBER 2016 SECTION 1: ECONOMIC DEVELOPMENTS Confidence figures accelerated in October, suggesting some momentum building for 4Q PMI AND GDP (index, %QoQ) ESI AND GDP (index, %QoQ) 56 54 PMIs level 0.9 0.6 108 104 ESI level 2 1 52 0.3 100 0 50 0.0 96-1 48 46 GDP (% QoQ) -0.3-0.6 92 88 GDP (% YoY) -2-3 Real GDP (% QoQ) PMI Manufacturing PMI Services PMI Real GDP (% YoY) ESI Confidence data so far continue to show the eurozone's resilience to increasing uncertainty since the summer But we remain cautious as political events in coming months -Italy s constitutional referendum, on-going Brexit, a charged political calendar for 2017- could end up weighing on confidence 12
EUROZONE WATCH NOVEMBER 2016 SECTION 1: ECONOMIC DEVELOPMENTS Manufacturing PMIs have increased in all core countries so far in 4Q, with a mixed performance in services 58 56 54 52 50 5 48 46 PMI (level) 58 56 54 52 50 48 46 44 Oct-16 Nov-16 Oct-16 Nov-16 Oct-16 Nov-16 Oct-16 Nov-16 4Q16 4Q16 4Q16 4Q16 Germany France Italy Spain PMI Composite PMI Manufacturing PMI Services 44 13
Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 EUROZONE WATCH NOVEMBER 2016 SECTION 2: UPDATED FORECASTS Headline inflation accelerated slightly in October driven by energy price base effects INFLATION AND CONTRIBUTION OF COMPONENTS (%YoY, pp) 1.5 INFLATION AND TRIMMED MEAN (%YoY) 3 0.5 2-0.5 1-1.5 0 Unprocessed Food Processed Food Services Energy Non-energy industrial goods HICP (% y/y) Trimmed mean inflation Core inflation Eurozone HCPI came out as expected at +0.5% YoY in October, slightly accelerating (+0.4% YoY in September), but the core measure remained stable at 0.8% YoY We expect increases in inflation during coming months, to rates slightly below 1% towards December, while energy base effects will continue to ease 14
4Q16 4Q16 4Q16 4Q16 4Q16 4Q16 4Q16 4Q16 4Q16 4Q16 4Q16 EUROZONE WATCH NOVEMBER 2016 SECTION 2: UPDATED FORECASTS The acceleration of inflation in 3Q was shared in most countries but in general remains subdued HEADLINE AND CORE INFLATION (%YoY) 2,5 2,0 1,5 1,0 0,5 0,0-0,5-1,0-1,5-2,0 1,0 0,7 0,5 0,1 0,1 0,1 0,4-0,6 0,7 0,5 1,7 1,6 0,8 0,6 0,5-0,2 0,9 0,2 0,1-1,1 1,2 0,0 Germany France Italy Spain Portugal Austria Belgium Finland Netherlands Greece Ireland Headline Inflation (% YoY) Core Inflation (% YoY) Headline Inflation 2015 Core Inflation 2015 By countries, HCPI inflation picked up in Spain (+0.5% YoY) and Germany (+1.0 YoY) in October, while it remained stable in France (+0.5% YoY) 15
EUROZONE WATCH NOVEMBER 2016 UPDATED FORECASTS: MODEST GROWTH OUTLOOK FOR 2016-17 UNCHANGED NOVEMBER 2016
EUROZONE WATCH NOVEMBER 2016 SECTION 2: UPDATED FORECASTS Growth drivers for the eurozone Lower tailwinds: disappearance of the effect of the depreciation of the euro and low oil prices Global outlook still uncertain Fruitless debate on fiscal stance to relieve an exhausted monetary policy Political risks in a jam-packed election calendar next year Brexit Improving confidence since midyear Resilience of internal demand despite of higher uncertainty and lower tailwinds Economic policies will continue to support the recovery: especially monetary policy along with a more favorable fiscal stance Gradual improvement in world trade 17
EUROZONE WATCH NOVEMBER 2016 SECTION 2: UPDATED FORECASTS Eurozone: unchanged forecasts, at around 1.5% GDP GROWTH AND FORECAST (%) MAIN MACROECONOMIC INDICATORS (%YoY, %GDP) 2.5 2014 2015 2016 (f) 2017 (f) 2.0 1.9 Real GDP 1.1 1.9 1.6 1.5 1.5 1.0 1.1 1.6 1.5 Private consumption 0.8 1.7 1.6 1.4 Public consumption 0.6 1.4 1.7 1.1 Investment 1.5 2.9 2.2 2.4 Domestic demand (cont. pp) 1.1 1.7 1.7 1.5 0.5 Exports 4.4 6.1 2.4 2.8 0.0 Imports 4.8 6.1 2.9 3.2 Net exports (cont. pp) 0.0 0.2-0.1-0.1-0.5-0.2 2013 2014 2015 2016 2017 Oct-16 Jul-16 Current account (% GDP) 2.4 3.1 3.4 3.2 Budget balance (% GDP) -2.6-2.1-1.9-1.8 HICP (avg. %YoY) 0.4 0.0 0.2 1.4 Domestic demand remains as the main driver of growth, still supported by monetary policy and, to a lesser extent, fiscal policy Our assessment ponders a downward bias by year-end due to political uncertainty, banking system blues and Brexit effects 18
May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 EUROZONE WATCH NOVEMBER 2016 SECTION 2: UPDATED FORECASTS ECB: An extension of QE remains as the most likely scenario BBVA EZ INFLATION MONITOR (index) 4 3 2 1 0 Whatever it takes Forward guidance TLTROs, CBPP3 & ABSPP QE What happened ECB dismissed rumors of tapering The decision of an extension of QE has been postponed to December -1-2 -3-4 -5-6 Next steps Expected extension of QE until September 2017 added to technical adjustments to cope with the scarcity of risk free (German) bonds. short term medium term long term 19
EUROZONE WATCH NOVEMBER 2016 SECTION 2: UPDATED FORECASTS Fiscal policy will continue to be supportive, but with high heterogeneity across countries FISCAL BALANCE BREAKDOWN (%GDP) 4 2 0-2 -4-6 -8-10 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 Germany France Italy Spain Eurozone Structural primary balance Cyclical component Interest payment Structural balance Total France will continue to consolidate fiscal accounts during 2016-17, while Germany committed to slightly expansionary measures despite high room for fiscal maneuver Italy is postponing consolidation efforts and increasing fiscal stimulus for 2016-17, while Spain is expected to adjust more slowly to a less supportive stance 20
EUROZONE WATCH NOVEMBER 2016 SECTION 2: UPDATED FORECASTS Germany: strengthening recovery in 2016, but uncertainty prevails in 2017 MAIN MACROECONOMIC INDICATORS (%YoY, %GDP) 2014 2015 2016 (f) 2017 (f) Real GDP 1.6 1.5 1.8 1.5 Private consumption 1.0 1.9 1.5 1.4 Public consumption 1.2 2.8 3.6 1.9 Investment 3.4 1.1 2.3 2.4 Domestic demand (cont. pp) 1.3 1.3 1.9 1.6 Exports 4.0 4.6 2.2 2.5 Imports 4.0 5.0 2.9 3.2 Net exports (cont. pp) 0.3 0.1-0.1-0.1 Upward revision in 2016, as public consumption offset a more moderate investment but higher uncertainty could weigh on confidence and private spending in coming quarters Resilient private consumption supported by labour market and wage growth Subdued global demand will continue to put a brake on exports and investment by year end and in 2017 Current account (% GDP) 7.4 8.5 8.9 7.9 Budget balance (% GDP) 0.3 0.7 0.5 0.3 HICP (avg. %YoY) 0.8 0.1 0.3 1.6 21
EUROZONE WATCH NOVEMBER 2016 SECTION 2: UPDATED FORECASTS France: relatively stable growth due to the worsening of domestic factors MAIN MACROECONOMIC INDICATORS (%YoY, %GDP) 2014 2015 2016 (f) 2017 (f) Stable and weak growth beyond volatility over last year, but the economy is failing to escape the cycle of modest growth Real GDP 0.7 1.2 1.2 1.3 Private consumption 0.7 1.5 1.6 1.5 Public consumption 1.2 1.4 1.5 1.2 Investment -0.4 0.9 2.6 2.0 Domestic demand (cont. pp) 1.1 1.5 1.7 1.5 Exports 3.4 6.0 1.0 3.2 Imports 4.8 6.4 2.4 3.5 Net exports (cont. pp) -0.5-0.3-0.5-0.2 Current account (% GDP) -1.1-0.2-0.7-0.8 Budget balance (% GDP) -4.0-3.5-3.3-2.7 HICP (avg. %YoY) 0.6 0.1 0.2 1.3 Uncertainty driven by upcoming elections should weigh over business confidence In this context, investment growth is expected to be lower, which adds to an ongoing fiscal adjustment Overall, private consumption should remain as the main contributor to GDP growth in coming quarters 22
EUROZONE WATCH NOVEMBER 2016 SECTION 2: UPDATED FORECASTS Italy: weak growth on the back of political and banking sector worries, which add to uncertainty in Europe MAIN MACROECONOMIC INDICATORS (%YoY, %GDP) 2014 2015 2016 (f) 2017 (f) Real GDP -0.3 0.6 0.7 0.9 Private consumption 0.6 0.9 1.1 0.8 Public consumption -1.0-0.7 0.5 0.3 Investment -3.3 0.6 1.9 1.8 Domestic demand (cont. pp) -0.3 1.0 1.0 0.8 Exports 2.9 4.1 1.2 2.4 Imports 3.0 5.8 2.2 2.1 Net exports (cont. pp) 0.0-0.3-0.2 0.1 Current account (% GDP) 1.9 1.7 2.9 2.8 Budget balance (% GDP) -3.0-2.6-2.4-2.3 HICP (avg. %YoY) 0.2 0.1-0.1 1.1 Growth continues supported by overall consumption, but will remain subdued Political uncertainty linked to the constitutional referendum and banking sector worries weighed on domestic demand, mainly private consumption Subdued investment in the forecast horizon curbed by expectations of sluggish recovery Net exports will again contribute to growth next year, but will be less supportive than in other peripheral countries 23
EUROZONE WATCH NOVEMBER 2016 SECTION 2: UPDATED FORECASTS Spain: upward revision to GDP, but the economy will slow down in the coming quarters MAIN MACROECONOMIC INDICATORS (%YoY, %GDP) 2014 2015 2016 (f) 2017 (f) Incoming data confirmed the upward bias to GDP growth forecasts in both 2016 and 2017. Domestic demand will continue to support the recovery Real GDP 1.4 3.2 3.3 2.5 Private consumption 1.6 2.9 3.3 2.3 Public consumption -0.3 2.0 1.2 1.8 Investment 3.8 6.0 4.1 3.4 Domestic demand (cont. pp) 1.9 3.3 3.0 2.3 Exports 4.2 4.9 5.5 3.5 Imports 6.5 5.6 5.1 3.1 Net exports (cont. pp) -0.5-0.1 0.2 0.2 with still strong investment, mainly in machinery and equipment. Net exports with positive contribution to growth in a context of subdued external demand Risks remain related to ongoing fiscal consolidation and political uncertainty, related to both idiosyncratic factors and Brexit Current account (% GDP) 1.0 1.4 1.3 1.7 Budget balance (% GDP) -5.7-5.0-4.6-3.6 HICP (avg. %YoY) -0.2-0.5-0.3 1.7 24
EUROZONE WATCH NOVEMBER 2016 Short-term indicators and Updated Forecasts Eurozone November 2016
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