Eurozone Economic Watch July 2018
Eurozone: A shift to more moderate growth with increased downward risks BBVA Research - Eurozone Economic Watch July 2018 / 2 Hard data improved in May but failed to recover from disappointing figures earlier this year. Retail sales and industrial output suggest a solid growth of both private consumption and investment, but at more moderate pace than in 2H17. Confidence indicators seem to level off up to July and remain resilient despite increasing uncertainty, pointing to relatively steady growth over the second half of the year. Some leading components, such employment expectations, remain positive, mostly driven by services sector. Our MICA-BBVA model estimates a GDP growth at around 0.4% QoQ in 2Q18 (a stable figure with respect to ). All in all, the eurozone gears towards more moderate but solid growth this year, supported by the strength of domestic demand after slowing markedly in the first quarter. The faster-than-expected slowdown in activity early this year along with increasing uncertainty and higher commodity prices lead us to revise down GDP growth forecasts by 0.3pp to 2% in 2018 and -0.1pp to 1.7% in 2019. Positive growth drivers remain in place. Fiscal and monetary policy will continue to support domestic demand in addition to improving labour market, while the euro depreciation along with robust global demand will continue to support exports. But increasing uncertainty could weigh on activity forward. Protectionism measures approved so far have a limited direct effect on activity, but could start dampening confidence and investment. The negative effect could be significant if the announced protectionist measures were implemented and other channels (confidence and financial) kick in. Headline inflation could hover slightly above 2% in the short-run driven by energy and food prices, but core inflation remains broadly stable at low levels. Higher oil prices and a weaker euro lead us to revise up headline inflation forecasts by 0.2pp in 2018-19 to 1.7% and 1.8%, respectively. Nascent inflationary pressures should support our view of gradual upward trend in core inflation in coming months (unchanged forecast at 1.1% in 2018 and 1.6% in 2019). Downward risks to this scenario have intensified and come mostly from a full blown trade war and domestic politics.
BBVA Research - Eurozone Economic Watch July 2018 / 3 01 Economic developments Hard data improved in May but failed to recover from disappointing figures in. Confidence seem to level off up to July despite increasing uncertainty.
Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 BBVA Research - Eurozone Economic Watch July 2018 / 4 Growth slowed down in early year but is expected to stabilize in 2Q18 After slowing down to 0.4% QoQ in, our MICA-BBVA model points to a similar pace of GDP growth in 2Q18, supported by the strength of domestic demand GDP, contribution by components (%QoQ, pp) 2.5 GDP and MICA forecasts (%QoQ) 1.0 1.5 0.8 0.5-0.5 0.4 0.6 0.4-1.5 0.2 0.0 Imports Change in inventories Public consumption Real GDP Exports Gross fixed capital formation Private consumption CI 20% CI 40% CI 60% Observed
Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 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 Jun-18 Confidence indicators seem to level off up to July and remain resilient despite increasing uncertainty BBVA Research - Eurozone Economic Watch July 2018 / 5 Confidence has stabilized after declining in early 2Q, while worries about protectionism are still latent in surveys. Lower confidence is still consistent with a robust but more moderate growth in coming quarters PMI and GDP (level, %QoQ) EC confidence survey (level) 62 PMIs level GDP (% QoQ) 1.2 120 30 60 58 56 0.9 0.6 115 110 105 100 20 10 0 54 52 50 0.3 0.0 95 90 85 80-10 -20-30 Real GDP (% QoQ) Manufacturing PMI PMI Services PMI ESI (lhs) Consumer (rhs) Industrial (rhs) Services (rhs)
Apr-18 May-18 Jun-18 Jul-18 Apr-18 May-18 Jun-18 Jul-18 Apr-18 May-18 Jun-18 Jul-18 Apr-18 May-18 Jun-18 Jul-18 BBVA Research - Eurozone Economic Watch July 2018 / 6 Composite PMIs bounced back in larger countries driven by services, except in Spain PMI survey (level) 64 62 60 58 56 54 5 52 50 3Q17 2Q18 3Q18 3Q17 2Q18 3Q18 3Q17 2Q18 3Q18 3Q17 2Q18 3Q18 Germany France Italy Spain Composite PMI Manufacturing PMI Services PMI
May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Industrial output bounced back in May, partially reverting the falls of previous months BBVA Research - Eurozone Economic Watch July 2018 / 7 IP rebounded in May (+1.3% MoM) showing increases in all types of goods, especially durables (+2.1% MoM) and capital (+0.7% MoM) Industrial production (level, %QoQ) 110 108 106 104 102 100 98 96 IP (level) 1.3 0.9 1.7 1.2 2.5 2.0 1.5 1.0 IP capital equipment, investment in M&E and capacity utilization (%QoQ, %) 8 6 4 2 Inv. M&E, IP 0.5 0 81 0.1 0.0-0.2-2 80-0.5-0.6 Capacity utilization (%) IP (% QoQ) -4 79-1.0 85 84 83 82 IP (2015=100) IP (% QoQ) Investment M&E (% QoQ) Capacity Utilization (%) IP Capital (% QoQ)
May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Higher growth of imports relative to moderated exports have slightly narrowed the trade balance BBVA Research - Eurozone Economic Watch July 2018 / 8 Trade balance ( bn, % GDP) Exports by destination (%YoY, pp) 200 190 180 Exports, imports & trade balance ( bn) 0.7 0.8 0.7 1.2 1.0 0.8 10 8 6 4 170 0.6 2 160 0.4 0 150 140 Trade balance (% GDP) 0.2 0.0-2 -4 Trade balance ( bn) Exports ( bn) Imports ( bn) Trade balance (% GDP) Other EU countries China LatAm Total Exports United States Asia (ex China) Rest of world
May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 BBVA Research - Eurozone Economic Watch July 2018 / 9 Retail sales have recovered after disappointing in as consumer mood remained supportive for households Retail sales increased slightly in May and should continue to rise in coming months driven by robust employment growth and confidence levels Retail sales and consumer confidence (%QoQ, level) Retail sales and total wage bill (%YoY, pp) 1.5 1.0 0.5 0.0-0.5 Retail Sales (% QoQ) 0.7 5 0 0.5-5 0.4 0.0-10 -15 4 3 2 1 0-1 -2-1.0-1.5 Consumer Confidence -20-25 -3-4 Retail Sales (% QoQ) Consumer Confidence Employees Total wage bill Real compensation Retail sales
3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 The jobless rate remained steady in May but with further declines in Italy and Spain BBVA Research - Eurozone Economic Watch July 2018 / 10 The unemployment rate remained flat at 8.4% in May, while the previous month it was revised down by 0.1pp Unemployment rate by country (%) 20 The annual fall in unemployment is concentrated in the less skilled but with increasing contributions from the high-skilled Change in unemployment by educational attainment (% YoY; pp) 6 4 15 10 2 0-2 -4-6 5-8 0 May-17 Apr-18 May-18-10 -12 Eurozone Germany France Italy Spain Lower secondary Tertiary Upper secondary No response
Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Headline inflation already reached 2% although the core measure remains broadly stable at low levels BBVA Research - Eurozone Economic Watch July 2018 / 11 HICP headline increased to 2.0% YoY (+0.1pp) in June, driven mostly by energy and non-processed food Core inflation eased a bit to 1.2% YoY (-0.1pp), still showing a gradual recovery Inflation and contribution of components (%YoY, pp) 2.0 1.5 1.0 0.5 0.0-0.5-1.0 Core and trimmed-mean inflation (%YoY) 3.5 3.0 2.5 2.0 1.5 1.0-1.5 0.5 0.0 Unprocessed Food Processed Food Services Energy Non-energy industrial goods HICP (% y/y) Trimmed mean inflation Core inflation
2Q18 2Q18 2Q18 2Q18 2Q18 2Q18 2Q18 2Q18 2Q18 2Q18 2Q18 There was a widening gap between headline and core inflation in all countries during 2Q18 BBVA Research - Eurozone Economic Watch July 2018 / 12 Headline and core inflation (%YoY) 2.5 2.0 2.0 2.2 2.2 2.2 1.5 1.0 0.5 1.7 1.5 1.2 0.6 1.3 0.8 1.1 1.6 1.3 1.6 0.8 0.5 1.3 0.9 1.1 0.6 0.3 0.0 0.0 Germany France Italy Spain Portugal Austria Belgium Finland Netherlands Greece Ireland Headline Inflation (% YoY) Core Inflation (% YoY) Headline Inflation 2017 Core Inflation 2017
BBVA Research - Eurozone Economic Watch July 2018 / 13 02 Updated forecasts Eurozone gears towards more moderate, but solid growth. Core inflation is expected to increase gradually over the forecast horizon.
BBVA Research - Eurozone Economic Watch July 2018 / 14 Eurozone growth drivers: higher uncertainty and commodity prices weigh on activity despite resilient domestic and global demand 01 Resilient domestic factors Still improving labour markets, stable profits and favourable lending conditions 02 Steady global expansion Eurozone exports could benefit from a weaker euro and robust global demand, but a more moderate growth than in 2017 03 Higher oil price & trade threat Lower disposable income and profits. Limited effect of approved protectionist measures, but they could dampen confidence and investment 04 Core inflation at low levels Nascent inflationary pressures should support a gradual upward trend in core inflation in coming months 05 Supportive economic policies Slightly expansionary fiscal policy, added to very gradual ECB s exit (rate hikes delayed to summer 2019 06 Risks intensify further A full blown trade war risk increased; added to higher domestic political uncertainty
BBVA Research - Eurozone Economic Watch July 2018 / 15 A rapid shift to more moderate growth Downward revision in 2018 and 2019 GDP growth (-0.3pp to 2.0% and -0.1pp to 1.7%) to account for lower than expected growth figures Although slowing, the investment recovery remains on track, adding to resilient consumption A weaker euro and still strong global demand will continue to support exports Both higher oil and import prices to push up headline inflation (+0.2pp in 2018-19). Core measure increasing only gradually as wage inflation recovers Eurozone GDP growth and forecast (%) Main macroeconomic indicators (% YoY, %GDP) 2.0 1.8 2.6 2.0 1.7 2016 2017 2018 (f) 2019 (f) Real GDP 1.8 2.6 2.0 1.7 Private consumption 1.9 1.7 1.5 1.5 Public consumption 1.8 1.2 1.2 1.2 Investment 4.5 3.5 3.0 2.9 Domestic demand (cont. pp) 2.2 1.9 1.7 1.7 Exports 3.3 5.5 4.1 4.2 Imports 4.6 4.5 3.7 4.4 Net exports (cont. pp) -0.4 0.7 0.3 0.1 2015 2016 2017 2018 2019 Current account (% GDP) 3.6 3.5 3.4 3.2 Budget balance (% GDP) -1.5-0.9-0.7-0.7 HICP (avg. %YoY) 0.2 1.5 1.7 1.8 Current Previous
1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 BBVA Research - Eurozone Economic Watch July 2018 / 16 Investment recovery is broad-based across countries in both construction and M&E Investment by country (=100) 120 110 100 90 80 70 60 50 Eurozone Germany France Italy Spain Total Construction M&E
2Q00 1Q01 4Q01 3Q02 2Q03 1Q04 4Q04 3Q05 2Q06 1Q07 4Q07 3Q08 2Q09 1Q10 4Q10 3Q11 2Q12 1Q99 4Q13 3Q14 2Q15 1Q16 4Q16 3Q17 2Q18 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 2Q18 3Q18 4Q18 BBVA Research - Eurozone Economic Watch July 2018 / 17 Uncertainty could weigh on investment but profits and lower idle capacity should underpin a solid growth Investment, capacity utilization and profit share (normalized) Investment and drivers contributions (% annual moving average, pp) 3 2 1 0-1 -2-3 -4-5 6 5 4 3 2 1 0-1 -2-3 -4 Investment (annual growth) Gross profit share of NFC Capacity utilization Growth composition Business climate Use cost of capital Growth expectations Policy uncertainty Fitted model
1Q00 4Q00 3Q01 2Q02 1Q03 4Q03 3Q04 2Q05 1Q06 4Q06 3Q07 2Q08 1Q09 4Q09 3Q10 2Q11 1Q12 4Q12 3Q13 2Q14 1Q15 4Q15 3Q16 2Q17 4Q18 3Q19 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 More moderate private consumption driven by slower real wage growth (due to higher inflation) BBVA Research - Eurozone Economic Watch July 2018 / 18 Disposable income has shown strong growth driven by robust job creation, but will be offset by higher inflation Unemployment rate expected to keep its downward trend Private consumption and real labour income (% YoY) 4 3 2 1 0 Unemployment rate and contribution (%, pp) 14 12 10 8 6 4 2-1 0-2 -2 HH disposable income (RHS) Private consumption Unemp. rate (-1) Labour force Employment Unemp. rate
2018 2019 2018 2019 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 2Q18 Recent euro depreciation will help boosting export competitiveness but also higher inflation BBVA Research - Eurozone Economic Watch July 2018 / 19 Exports, EURUSD and World GDP (% QoQ) 2.4 1.9 1.4 0.9 0.4 6 4 2 0-2 -4 Effect of euro depreciation on GDP growth and inflation (pp) 0.12 0.10 0.08 0.06 0.04-0.1-6 0.02 Exports (% QoQ) Avge. Export growth since 2013 World GDP (% QoQ) Effective exchange rate (inverted % QoQ, RHS) 0.00 GDP growth Inflation
Limited effect of approved new tariffs, but it could significant if those under discussion are implemented BBVA Research - Eurozone Economic Watch July 2018 / 20 Effect on GDP growth of higher US tariffs and retaliation from affected countries (2018-19, pp) The tariffs increase approved by the US would have a reduced direct impact on 0,00 GDP. But indirect effects, via economic -0,05 confidence and financial channel, could emerge in 2S18. -0,10-0,15-0,20-0,25-0,30-0,35-0,40-0,45 Current measures World US China Eurozone Measures under discussion If protectionist escalated, the negative effect on growth would also be significant in the US The effect, lower in Europe, would differ by country, and would affect mainly Germany and the Eastern countries Global GDP growth could be reduced but around 0,2pp due to the trade channel. If confidence and financial conditions worsened, protectionist measures could take a further 0.3pp away from global growth (to around -0.5pp) Measures announced: tariffs increase to 25% for steel, 10% for aluminum and 25% to Chinese imports for USD50mM Measures under discussion: Tariffs increase up to 20% for Chinese cars and imports worth USD200mM. Source: BBVA Research
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 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 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 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 BBVA Research - Eurozone Economic Watch July 2018 / 21 Easing energy inflation will be offset by higher core prices over the next year Higher headline inflation due to both oil price increase and euro depreciation. Reaching an average of 1.7% and 1.8% in 2018-19 (revised up by +0.2pp in both years) No major changes in core inflation projections, with only gradual increases as wage inflation recovers (average of 1.1% and 1.6% in 2018-19, the latter revised up by +0.1pp) HICP headline inflation and forecast (% YoY) HICP core inflation and forecast (% YoY) 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0 3.0 2.5 2.0 1.5 1.0 0.5 0.0 20% 40% 60% 80% 20% 40% 60% 80% Source: BBVA Research
The ECB delayed rate hikes until next summer following a strong guidance to avoid a market turmoil BBVA Research - Eurozone Economic Watch July 2018 / 22 QE The QE will end in 2018 Monthly purchases of EUR30bn up to September Then monthly buys of EUR15bn until December Interest rates Strong and explicit guidance on rates. Delay in rate rises until September 2019 But the ECB will remain in debt markets: reinvestment of maturities The challenge for the ECB to manage rates expectations has been met Key issues in QE exit: Long interest rates and risk premium Exchange rate (Euro) Expectations on interest rate hikes
Germany: A more moderate growth driven by slower exports but still robust investment BBVA Research - Eurozone Economic Watch July 2018 / 23 Main macroeconomic indicators (% YoY, %GDP) 2016 2017 2018 (f) 2019 (f) Real GDP 1.9 2.5 1.9 1.7 Private consumption 1.9 2.0 1.4 1.5 Public consumption 3.7 1.5 1.3 1.7 Investment 2.9 4.0 3.4 3.0 Domestic demand (cont. pp) 2.2 2.3 1.8 1.7 Exports 2.4 5.3 5.0 4.1 Imports 3.8 5.6 5.4 4.8 Net exports (cont. pp) -0.4 0.2 0.1 0.0 Current account (% GDP) 8.5 8.1 7.9 7.3 Budget balance (% GDP) 1.0 1.3 1.2 1.3 HICP (avg. %YoY) 0.4 1.7 1.9 1.9 GDP growth forecasts were revised down in 2018 (-0.5pp) and 2019 (-0.1pp) mostly due to lower than expected data on exports and consumption in Private consumption will moderate due to a tighter labour market and higher inflation Euro depreciation and still positive global outlook will continue to support trade figures and investment although increasing protectionism pose downside risks (automotive sector) Public expenditure expected to support domestic demand but in a context of an almost neutral fiscal policy stance Local risks eased but remained latent, mostly coming from a weakened government coalition that could weigh on confidence
France: Growth revised down in 2018 given both higher inflation and a stalled domestic demand BBVA Research - Eurozone Economic Watch July 2018 / 24 Main macroeconomic indicators (% YoY, %GDP) 2016 2017 2018 (f) 2019 (f) Real GDP 1.1 2.3 1.8 1.6 Private consumption 1.9 1.2 1.1 1.3 Public consumption 1.4 1.4 1.4 1.4 Investment 2.7 4.7 2.9 2.6 Domestic demand (cont. pp) 1.6 2.2 1.4 1.6 Exports 1.5 4.7 3.5 3.4 Imports 3.1 4.1 2.3 3.2 Net exports (cont. pp) -0.5 0.1 0.3 0.0 Current account (% GDP) -0.8-0.6-0.5-0.6 Budget balance (% GDP) -3.4-2.6-2.5-2.3 HICP (avg. %YoY) 0.3 1.2 1.8 1.8 We revised down GDP growth in 2018 to 1.8% (-0.2pp) after higher growth in 2017 supported by exports (revised up by +0.3pp) Incoming data showed a slowdown in domestic demand, mostly investment Private consumption growth to be hit by higher inflation Lower import growth will increase the contribution net external demand this year Fiscal consolidation and reforms could be delayed by the risk of heightened social discontent
BBVA Research - Eurozone Economic Watch July 2018 / 25 Italy: Still lagging behind while facing increasing political risks Main macroeconomic indicators (% YoY, %GDP) 2016 2017 2018 (f) 2019 (f) Real GDP 1.0 1.6 1.1 1.2 Private consumption 1.4 1.4 1.0 1.0 Public consumption 0.6 0.1 0.2 0.4 Investment 3.3 3.9 3.0 2.1 Domestic demand (cont. pp) 1.3 1.4 1.1 1.0 Exports 2.6 6.0 3.2 3.4 Imports 3.8 5.7 3.4 3.1 Net exports (cont. pp) -0.3 0.2 0.0 0.2 Current account (% GDP) 2.6 2.8 2.9 2.3 Budget balance (% GDP) -2.5-2.3-1.9-1.9 HICP (avg. %YoY) -0.1 1.3 1.3 1.7 We revised down GDP growth forecasts in 2018-19 (with -0.4pp and -0.1pp, respectively) Although investment figures will continue to underpin growth, higher uncertainty stalled the pace of recovery Private consumption should moderate, mostly dragged down by higher inflation The still positive global trade outlook will support exports, but imports will offset their contribution to growth Policy uncertainty and risks of populism remain latent and increasing
Spain: Unchanged GDP growth forecasts with supportive policies counteracting headwinds BBVA Research - Eurozone Economic Watch July 2018 / 26 Main macroeconomic indicators (% YoY, %GDP) 2016 2017 2018 (f) 2019 (f) Real GDP 3.3 3.1 2.9 2.5 Private consumption 2.9 2.4 2.6 2.1 Public consumption 0.8 1.6 2.0 2.0 Investment 3.3 5.0 4.3 5.6 Domestic demand (cont. pp) 2.5 2.8 2.8 2.7 Exports 4.8 5.0 3.5 6.0 Imports 2.7 4.7 3.6 7.1 Net exports (cont. pp) 0.7 0.3 0.1-0.2 Current account (% GDP) 1.9 1.7 1.3 1.5 Budget balance (% GDP) -4.3-3.1-2.8-2.1 HICP (avg. %YoY) -0.2 2.0 1.8 1.7 GDP growth forecasts are maintained at 2.9% and 2.5% in 2018 and 2019 Some changes in demand composition with both exports and investment (M&E) negatively affected by headwinds (e.g. supply constraints, higher oil price and the Eurozone slowdown) Consumption will keep growing while investment in construction accelerates Supportive monetary and fiscal policy will counteracts headwinds Political uncertainty, and the costs of a pro-cyclical fiscal stance are the main local risk
Eurozone Economic Watch July 2018
BBVA Research - Eurozone Economic Watch July 2018 / 28 Disclaimer This document has been prepared by BBVA Research Department, it is provided for information purposes only and expresses data, opinions or estimations regarding the date of issue of the report, prepared by BBVA or obtained from or based on sources we consider to be reliable, and have not been independently verified by BBVA. Therefore, BBVA offers no warranty, either express or implicit, regarding its accuracy, integrity or correctness. Estimations this document may contain have been undertaken according to generally accepted methodologies and should be considered as forecasts or projections. Results obtained in the past, either positive or negative, are no guarantee of future performance. This document and its contents are subject to changes without prior notice depending on variables such as the economic context or market fluctuations. BBVA is not responsible for updating these contents or for giving notice of such changes. BBVA accepts no liability for any loss, direct or indirect, that may result from the use of this document or its contents. This document and its contents do not constitute an offer, invitation or solicitation to purchase, divest or enter into any interest in financial assets or instruments. Neither shall this document nor its contents form the basis of any contract, commitment or decision of any kind. In regard to investment in financial assets related to economic variables this document may cover, readers should be aware that under no circumstances should they base their investment decisions in the information contained in this document. Those persons or entities offering investment products to these potential investors are legally required to provide the information needed for them to take an appropriate investment decision. The content of this document is protected by intellectual property laws. It is forbidden its reproduction, transformation, distribution, public communication, making available, extraction, reuse, forwarding or use of any nature by any means or process, except in cases where it is legally permitted or expressly authorized by BBVA.