annual report 2015 chapter 1 overview · brent oil industrial metals food aggregate futures for...

DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH

ANNUAL REPORT 2015

CHAPTER 1

OVERVIEW


THE WORLD ECONOMY IN 2015

2

Conditioning factors behind the lower global growth were the re-balancing of theChinese economy, the acceleration of the fall in oil prices and expectations ofmonetary normalisation in the United States.

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2010 2011 2012 2013 2014 2015 2016

WORLD ADVANCED ECONOMIES

EMERGING ECONOMIES

y-o-y % IMF projections

GDP GROWTH AND IMF FORECASTS

2030405060708090

100110120

2012 2013 2014 2015 2016 2017 2018

BRENT OIL INDUSTRIAL METALS FOOD AGGREGATE FUTURES FOR END-2016 AND 2017

Jan 2012 = 100

COMMODITIES PRICES


THE MODEST RECOVERY IN THE EURO AREA

3

The build-up of downside risks to the price stability target and signs of the de-anchoring of inflation expectations led the ECB to extend its asset purchaseprogramme in early 2015 and to approve further stimulus measures in December2015 and March 2016.


THE CONTINUATION OF THE SPANISH RECOVERY

4

In 2015 the pace of recovery stepped up, to a rate (3.2%) appreciably higher thanthat recorded by Spain's European partners.

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-2

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2

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6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GROSS DOMESTIC PRODUCT

%

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2007 2008 2009 2010 2011 2012 2013 2014 2015

NATIONAL DEMAND EXTERNAL DEMAND GDP (ANNUAL RATE OF CHANGE) (%)

GDP, NATIONAL DEMAND AND EXTERNAL DEMAND

pp

-3-2-10123

2007 2008 2009 2010 2011 SPAIN EURO AREA

DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH 5

Household expenditure and business investment were markedly dynamic in 2015;the contribution of external demand to growth was negative; and governmentconsumption and public investment moved on an expansionary course.

Employment grew forcefully across practically all sectors, and the pace of declineof the unemployment rate increased.

THE CONTINUATION OF THE SPANISH RECOVERY

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2007 2008 2009 2010 2011 2012 2013 2014 2015

OTHER DEMAND COMPONENTS GOVERNMENT CONSUMPTION AND PUBLIC INVESTMENT

PRIVATE CONSUMPTION NATIONAL DEMAND (ANNUAL RATE OF CHANGE) (%)

NATIONAL DEMAND AND COMPONENTSpp

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15

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

%

UNEMPLOYMENT RATE

-3-2-10123

200720082009201020112012201320142015 SPAIN EURO AREA


DETERMINANTS OF GROWTH IN 2015

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Growth continued to be underpinned by structural factors, linked to improvedcompetitiveness, the progressive restoring of macrofinancial equilibria and theeasing in financing conditions for households and firms...

The policies and reforms applied both domestically and at the European level havecontributed to correcting the imbalances that built up.

90

95

100

105

110

115

120

2000 2002 2004 2006 2008 2010 2012 2014

ULCs COMPENSATION PER EMPLOYEE PRODUCTIVITY PER EMPLOYEE

UNIT LABOUR COSTS IN SPAIN RELATIVE TO THE EURO AREA

2000 = 100

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7%

INTEREST RATES ON LOANS < €1 MILLION

a The euro area core comprises the following countries: Germany, Austria, France, Netherlands, Finland and Luxembourg.

01234567 SPAIN CORE EURO AREA (a)


THE RELEVANCE OF TEMPORARY FACTORS

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… and other temporary factors also contributed, including most notably the fall inoil prices, the depreciation of the euro and demand-side (monetary and fiscal)policies.

The lesser contribution of the temporary factors that have boosted activitysuggests more moderate growth in the short and medium term.

EFFECT OF THE CHANGE IN THE EXOGENOUS ASSUMPTIONS SINCE MID-2014 ON GDP GROWTH AND INFLATION FOR 2015

GDP Inflation

Monetary policy 0.6 0.6

Fiscal policy 0.5 0.2

Global demand -0.6 -0.1

Oil and other commodities prices 0.6 -2.3

TOTAL 1.1 -1.6


CHALLENGES OUTSTANDING: REDUCING UNEMPLOYMENT

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The challenges in the labour market are associated with the persistence of highunemployment rates, the scant link between wages and firms' specific conditionsand the high temporary employment ratio.

These challenges require measures to provide for a closer alignment of firms'conditions with their specific situation, to boost the attractiveness of permanenthiring and to improve active policies.

UNEMPLOYMENT, LONG-TERM UNEMPLOYMENT AND VERY LONG-TERM UNEMPLOYMENT

Unemploymentrate

Incidence oflong-term

unemployment

Incidence of verylong-term

unemployment

2006 8.5 25.7 13.0

2007 8.2 23.8 12.3

2008 11.3 21.5 9.9

2009 17.9 28.6 10.5

2010 19.9 42.6 17.0

2011 21.4 48.2 24.7

2012 24.8 52.4 29.9

2013 26.1 58.5 36.1

2014 24.4 61.8 42.5

2015 22.1 60.9 44.2

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30

35

02 03 04 05 06 07 08 09 10 11 12 13 14 15

SPAIN: TEMPORARY EMPLOYMENT RATIO EURO AREA: TEMPORARY EMPLOYMENT RATIO

%

TEMPORARY EMPLOYMENT RATIO (a)

a Temporary employees as a proportion of total employees, calculated with Q2 data for each year.


CHALLENGES OUTSTANDING: FISCAL CONSOLIDATION

9

In 2015 there was a deterioration in the structural deficit and significant slippageby the budget deficit from the target set by the European authorities.

A detailed medium-term consolidation programme, the strict application of theBudgetary Stability Law, a composition of public finances more conducive togrowth and a response to the challenges posed by population ageing are allrequired.

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2007 2008 2009 2010 2011 2012 2013 2014 2015

BALANCE - EURO AREA BALANCE - SPAIN

STRUCTURAL BALANCE - EURO AREA STRUCTURAL BALANCE - SPAIN

% of GDP

BALANCE AND STRUCTURAL BALANCE

50

60

70

80

90

100

110

2010 2011 2012 2013 2014 2015

EURO AREA SPAIN

EDP DEBT

% of GDP


CHALLENGES OUTSTANDING: PRIVATE-SECTOR DELEVERAGING

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Households' and firms' debt ratio continued to decline in 2015; but the declinewas nevertheless compatible with a pick-up in the flow of new financingtransactions.

The decline in the aggregate balance of lending to firms has been accompanied bya significant inter-sectoral and intra-sectoral reallocation.

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90

2008 2009 2010 2011 2012 2013 2014 2015

SPAIN EURO AREA

% of GDP

DEBT RATIO. HOUSEHOLDS

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80

90

100

110

120

130

2008 2009 2010 2011 2012 2013 2014 2015

SPAIN EURO AREA

% of GDP

DEBT RATIO. NON-FINANCIAL CORPORATIONS


CHALLENGES OUTSTANDING: THE CORRECTION OF THE EXTERNAL DEBT POSITION

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There has been a structural improvement in the trade balance and a pick-up innational saving, but the net debtor position vis-à-vis the external sector remains atvery high levels.

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95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

ACTUAL BALANCE OF GOODS AND SERVICES CYCLICALLY ADJUSTED BALANCE OF GOODS AND SERVICES (a)

% of GDP

BALANCE OF GOODS AND SERVICES2010 constant prices

a Trade balance had both the Spanish economy and its main trading partners grown at asimilar rate to the potential GDP rate.

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60

90

120

150

180

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95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

NET IIP EXCL. BE TOTAL NET IIP GROSS EXTERNAL DEBT (right-hand scale)

NET INTERNATIONAL INVESTMENT POSITION (IIP) AND GROSS EXTERNAL DEBT POSITION

% of GDP % of GDP


CHALLENGES OUTSTANDING: IMPROVINGPRODUCTIVITY

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Increasing productivity is crucial for improving growth prospects, especiallyagainst a background of population ageing. However, productivity growth in theSpanish economy is holding at a significantly lower rate than that of otherdeveloped countries.

To improve the dynamism of productivity calls for a reform of the regulation ofcertain sectors, the boosting of human and technological capital, enhancedinstitutional quality and a revision of the rules hampering business start-ups andgrowth.

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81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

SPAIN GERMANY UNITED STATES

TOTAL FACTOR PRODUCTIVITY GROWTH

%

POTENTIAL GROWTH AND CONTRIBUTIONS

2001-2007

2008-2014

2015-2025

Potential growth 3.04 0.60 1.0

Contributions

Employment 1.60 -0.20 0.0

Hours per employee -0.20 -0.10 -0.1

Employees 1.80 -0.10 0.1

Population aged 15-64 1.00 0.00 -0.3

Participation rate 0.90 0.30 0.1

NAIRU-PC -0.10 -0.40 0.3

Capital 1.57 0.60 0.4

TFP -0.14 0.20 0.6


CHALLENGES OUTSTANDING: PROGRESS IN THE CONSTRUCTION OF EMU

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In the short term, greater economic policy coordination is called for.

• The creation of an independent European Fiscal Council, and the promotion of

competitiveness councils.

• To complete the Banking Union and thereby ensure a level playing field for banking

systems.

• To complete financial integration with the Capital Markets Union.

In the medium term, the institutional architecture is still to be completed.

• Creation of a Fiscal Union promoting macroeconomic stabilisation in the euro area.

• Structural convergence in areas such as labour markets and fiscal systems.

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