spanish economic outlook - bankia · outlook | june 2017 ... y/y 2015 2016 2017 (p) 2018 (p) ......

Spanish economic outlook

June 2017

1

2

3

Spanish economy a pleasant surprise

Growth drivers

Forecasts once again bright

http://www.bankiaestudios.com/estudios/es/

Spanish economic outlook | June 2017

One of the most dynamic economies in Europe

Spain growing at a faster rate than EMU over last three years

3

0.8%



Job creation rates on the up...

Number of Social Security registered members returns to 2009 levels

4

3.8%

2.3%



... while high unemployment rate falls

Decrease in active population also a factor

5

-2.2 pp



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

7

+15%

1Q 17

+19%

1Q 17



Sharp rise in lending to households

8

Source: Bank of Spain and Bankia Research

0

5

10

15

20

25

30

35

40

45

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

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

chan

ge %

Credit card Loans

New consumer loans

-20

-10

0

10

20

30

40

50

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

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

chan

ge %

New loans to house purchase

27.2%

29.8%

20.6%

39.9

35.0

63.6

0

20

40

60

80

100

120

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

New loans to households(2007 = 100)

Total

Housing

Consumption



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



Credit starts flowing to businesses once again

11

Source: Bank of Spain and Bankia Research

-60

-40

-20

0

20

40

60

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

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

chan

ge %

New loans to large firms

13.8%

39.7%

-10

0

10

20

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

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

chan

e %

New loans to SMEs

33.9

49.2

27.7

0

20

40

60

80

100

120

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

New credits to non-financial corporations(2007 = 100)

Total

SMEs

Large firms



Surge in tourism key to Spanish economy

Country remains attractive to tourists compared to competing destinations

12

12%

6%



Spike in inflation has hit its peak

Trend shaped by energy prices

13

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.



How is the Spanish economy performing?

Inflection point not yet reached, raising growth forecasts

14

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


1

2

3

Spanish economy surprisingly upbeat

Growth drivers




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

17

GDP has returned to 2008

levels, although the share of

each component has

changed.

Excessive share of

construction and imports has

been corrected.



Leading to highest current account surplus on record...

Although high level of external debt means country is still extremely vulnerable

18

85.7%

2.1%

of GDP



... 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



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

22

-4,6

-2.2

-6.1

-3.3

-3.4-1.4

-25

-20

-15

-10

-5

0

5

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

y/y

rate

of

chan

ge %

Total Non-Financial corporations Households

Loans. Households & Non-financial corporations

170

107

90

50

100

150

200

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

% o

f G

DP

Spain Italy Germany France Euro area

Loans. Households & Non-financial corporations

- €640 billion

Last 12 months

Source: BCE & Bankia Estudios Source: BdE & Bankia Estudios



Major impact of drop in debt servicing costs, especially for businesses

Greater fall in interest paid than interest received

23

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.



Progress made and challenges ahead after a deep, drawn out crisis

Flow variables brighter, although certain stock measures remain weak

24

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


1

2

3

Spanish economy surprisingly upbeat

Growth drivers





Upward trends

26

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.



Are drivers being undervalued?

27

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

Greater competitiveness and less elasticity of imports than domestic demand

Keys to dynamism of Spanish economy

Risks prevailing, but with limited impact at present

Climate of domestic and foreign political uncertainty

Protectionism and growth in world trade

Brexit

Monetary policy (ECB tapering)



We envisage the upswing to continue

Although the rate of recovery will slow as a number of temporary drivers are offset

28

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.

3.2% 2.9%

2.5%



Strong employment growth

Increase in household wealth

Favourable forecasts

Low interest rates

Postponed spending decisions now being acted upon

Key household consumption factors

29

Slower uptick in disposable income

Loss of purchasing power due to rising inflation

Need to continue deleveraging...

... and re-establish low savings rates



Favourable borrowing conditions

Brighter demand forecasts

Projects postponed in 2016 now being started

Acceleration of housing segment

Greater contribution of intangible investment

Greater use of production capacity

Key investment factors

30

Greater tax burden on businesses

Sluggishness of public works activity



Key external demand factors

31

Dynamism of global markets

Internationalisation of business

Competitiveness gains

Favourable exchange rate

Boost from tourism

Decent sales of other services

Imports replaced by national output

Loss of competitiveness due to second period of rising inflation

Brexit

Potential rise in protectionism

Oil price hike



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spanish economic outlook - bankia · outlook | june 2017 ... y/y 2015 2016 2017 (p) 2018 (p) ......

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