perspectives on global and spanish economy q1-2019 · 2019-01-22 · perspectives on global and...
TRANSCRIPT
January 2019
QUARTERLY REPORT
Perspectives on
Global and Spanish Economy
Q1-2019
Key global events in 2018
3
Syn
ch
ron
ised
de
ce
lera
tion
Syn
ch
ron
ise
d g
row
th
Upward revision
of global growth
forecasts (IMF)
January February March - April JuneMay
October November DecemberSeptemberJuly - August
Rise in volatility and
Jerome Powell, the new president
of the Fed
Source: Círculo de Empresarios, 2019
Trump imposes
tariffs on steel &
aluminium
The US
abandons Iran
nuclear deal
ECB announces
the end of net
assets as of
2019
Increases in tariffs between
the US & China
New tariffs and
the Fed hikes
interest rates tothe range of
2% - 2.25%
Italy’s credit-rating is
downgraded
EU-Italy budgettensions and the
largest drop in oilprices in ten years
Worst December inhistory for the US stockmarkets and thepartial shutdown ofTrump’s government
Overview of the economic situation Q1-2019
4Source: Círculo de Empresarios, 2019
Despite being in a favourable economic cycle (global growth still above 3%), GDP estimates are being
revised downwards (IMF, OECD, European Commission, etc.).The striking main causes: economic cycle phase change, trade slowdown, Trump’s protectionism,
monetary policy normalisation, political tensions stemming from populism (Brexit, Italy, etc.) and worse
economic expectations in China and Germany.
The growth of world GDP exhibits less synchronisation than in January 2018. In advanced economies, theUS expands at rates above 2%, supported by fiscal stimuli and an unemployment rate at record lows. In
contrast, the EU loses strength due to the uncertainty associated with Brexit & Italy and the
consequences of the trade war having a greater impact on the German external sector.
In emerging markets, on the one hand, given their high levels of debt, the evolution of their growth andinflation rates depend on the rise in US interest rates and the unfolding of oil prices. On the other hand,
the financial instability resulting from the near end of the economic cycle and lower prospects for the
growth in corporate profits in 2019 worry the financial markets, manifested through an increase involatility.
Grey swans 2019
5
Grey swans: incidents that describe highly improbable but high global economic impact events
Source: Círculo de Empresarios based on Nomura, 2019
Recession in the US
& Germany
Oil prices soar to
$100 per barrel
End of populism
Allay fears over
Italy’s recovery
Global growth accelerates
Abrupt deleveraging
in China
A reduction of inflation
in emerging markets
Trends 2019
6
Lack of a final Brexit withdrawal agreement
Trump's trade war with the rest of the world
Moderation in the US interest rates hike and the end
of Eurozone stimulus programme
Italy’s populist government
Possibly nearing the end of the expansion economic cycle
Source: Círculo de Empresarios, 2019
Poverty: living standards gradually improve in the world
7
Global poverty rate*
* International Poverty Line (IPL) is $1.90 a day
Source: Círculo de Empresarios based on Reuters, 2019
1950
1999
2018
72%
28.6%
8.6%
In Africa…
The proportion of child mortality under age 5 hasdropped from 21% in 1975 to 8% in 2015
In the last decade, the real income per capita has
increased by 40% in Sub-Saharan Africa
Advanced economies: economic growth forecasts
Source: Círculo de Empresarios based on Reuters, 2019 8
1,8
2.92.5
1.91.5
EUROZONEUS
Real GDP (%)
From a robust & synchronised growth at the beginning of the year to exhibiting signs of the
expansion phase of the economic cycle coming to an end
0
1
2
3
0.80.8
JAPAN UK
1.3 1.5
ADVANCED
ECONOMIES
2.32
2
1.2
3.6
1.6
1.1
0.3
1.8
0.5
2018 Minimum forecast2019
Maximum forecast
Emerging markets: economic growth forecasts
Source: Círculo de Empresarios based on Reuters, 2019
9
1,8
BRAZILCHINA
Real GDP (%)
0
3
5
7
ARGENTINA TURKEY EMERGING
MARKETS
The crisis in Argentina and Turkey erode confidence in emerging markets
2018 Minimum forecast2019
Maximum forecast
6.66.3
1.3 2.4
-2.5-1.2
-3
3
0.2
4.64.5
6.9
5.8
3.5
0.8
0.3
-2.5
-5
2.3
Global PMI weakens in 2018
Source: Círculo de Empresarios based on IHS Markit, 201910
With the exception of the US, the economic sentiment of businesspersons worsens during 2018
Manufacturing PMIA reading above 50 indicates an expansion of the manufacturing sector compared to the previous month; below 50 represents a contraction; while 50 indicates no change
Note: The JPMorgan Global Manufacturing PMI has been used for the global data
58
% o
f w
orl
d G
DP
ene-18 feb-18 mar-18 abr-18 may-18 jun-18 jul-18 ago-18 sep-18 oct-18 nov-18 dic-18
EEUU 55,5 55,3 55,6 56,5 56,4 55,4 55,3 54,7 55,6 55,7 55,3 53,8
Alemania 61,1 60,6 58,2 58,1 56,9 55,9 56,9 55,9 53,7 52,2 51,8 51,5
Francia 58,4 55,9 53,7 53,8 54,4 52,5 53,3 53,5 52,5 51,2 50,8 49,7
Italia 59 56,8 55,1 53,5 52,7 53,3 51,5 50,1 50 49,2 48,5 49,2
UK 55,1 54,9 54,8 53,9 54,2 54,1 53,8 52,8 53,8 51,1 53,6 54,2
Japón 54,8 54,1 53,1 53,8 52,8 53 52,3 52,5 52,5 52,9 52,2 52,6
China 51,5 51,6 51 51,1 51,1 51 50,8 50,6 50 50,1 50,2 49,7
India 52,4 52,1 51 51,6 51,2 53,1 52,3 51,7 52,2 53,1 54 53,2
Brasil 50 52,7 50,4 50 49,5 47 50,4 50,4 50,9 51,1 52,7 52,6Global 54,4 54,1 53,3 53,5 53,1 53 52,8 52,6 52,2 52,1 52 51,5
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
US 55.5 55.3 55.6 56.5 56.4 55.4 55.3 54.7 55.6 55.7 55.3 53.8
Germany 61.1 60.6 58.2 58.1 56.9 55.9 56.9 55.9 53.7 52.2 51.8 51.5
France 58.4 55.9 53.7 53.8 54.4 52.5 53.3 53.5 52.5 51.2 50.8 49.7
Italy 59 56.8 55.1 53.5 52.7 53.3 51.5 50.1 50 49.2 48.5 49.2
UK 55.1 54.9 54.8 53.9 54.2 54.1 53.8 52.8 53.8 51.1 53.6 54.2
Japan 54.8 54.1 53.1 53.8 52.8 53 52.3 52.5 52.5 52.9 52.2 52.6
China 51.5 51.6 51 51.1 51.1 51 50.8 50.6 50 50.1 50.2 49.7
India 52.4 52.1 51 51.6 51.2 53.1 52.3 51.7 52.2 53.1 54 53.2
Brazil 50 52.7 50.4 50 49.5 47 50.4 50.4 50.9 51.1 52.7 52.6
Global 54.4 54.1 53.3 53.5 53.1 53 52.8 52.6 52.2 52.1 52 51.5
Risks in 2019
Greater trade sanctions against China & the EU
US
An increase in the depreciation of the dollar would put a strain on their financial sustainability
Argentina
Turkey China
Aggressive deleveraging
More US sanctions
Hard Brexit
UK/
EU
Obscurity surrounding the new government and its new economic policy
Brazil
US sanctions and low oil prices
Russia
Australia
Source: Círculo de Empresarios, 2019
Inflation and growth are adversely affected
11
Sharp increase in inflation and interest rates
Geopolitical factors pose the greatest risks in 2019
High household debt-to-income ratio
Source: Círculo de Empresarios based on Bloomberg, 201912
Trade balance (goods) in $ bn
Trade war: the US’ exposure to the rest of the world
China
India
Singapore
South Korea
Central & South America (excluding Brazil)
Brazil
Saudi Arabia
Canada UKJapan
France
Germany
Italy
Mexico
Taiwan
336
Surplus Deficit
57
69
67
35
27
14
14
1639
20
28
50
5
Trade war: China—US
If trade tensions between China and the US persist, they will have a greater impact on China’s
economic growth in the medium-term
Impact on GDP growth forecasts Percentage points
Source: Círculo de Empresarios based on IMF, 2019
Evolution of exports of Chinese goods $ bn, year-on-year change (%)
381
413
447
-9
-6
-3
0
3
6
9
12
340
360
380
400
420
440
460
Jan-Oct 2016 Jan-Oct 2017 Jan-Oct 2018
Chinese exports to the US (left-axis)
Year-on-year change (right-axis)
Declarations at the G20 summit in Buenos Aires (30 November 2018)
• On January 1, tariffs on Chinese products worth $200 billion will not be increased*
US
• Committed to increasing imports in agricultural, energy, and industrial products
China
*These tariffs will rise to 25% if an agreement is not reached by the end of March 13
-2
-1
0
2018 2019 2020 2021 2022 2023
US China
14
Emerging markets: isolated turmoil in specific countriesTurkey and Argentina have the highest levels of public debt held in a foreign currency (US dollars) and
current account deficits. Moreover, their currencies have suffered a sharp depreciation in 2018
Source: Círculo de Empresarios based on Bloomberg, BIS, & Reuters, 2019
Current account balance Emerging markets% of GDP
Emerging market currency exchange rate against the US dollar
-8
-6
-4
-2
0
2
4
6
8
0
20
40
60
80
100
120
Russia Argentina Turkey Mexico China Brazil
15
Argentina: forecast for recovery in mid-2019
After the receipt of an IMF loan ($57.1 billion, 8.9% of GDP), Argentina's economic recovery phase is expected to begin from Q2-2019 and reach a growth rate of 2.7% in 2020
Source: Círculo de Empresarios based on Reuters, IMF, & Bloomberg, 2019
Biggest IMF bailouts$ bn
Real GDP growth rate%
-2.5%
-1.2%
2.2%
2018 2019 2020 0 10 20 30 40 50 60
Brazil 1998
Russia 1996
Turkey 1999
South Korea 1997
Argentina 2000
Ireland 2010
Brazil 2002
Greece 2012
Portugal 2011
Greece 2010
Argentina 2018
16
Asia: In 2030, will account for 40% weight in the world GDP
Source: Círculo de Empresarios based on Bloomberg & BIS, 2018
Weight of Asia in world GDP%
Nonetheless, the high level of private debt is unsettling
Asian countries with the highest level of indebtedness% of GDP
10
15
20
25
30
35
40
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
70
213115
48 39 51
306156
175231 194 135
0
100
200
300
400
Hong Kong Japan Singapore China SouthKorea
Malaysia
Public debt Private debt376 369
290
186233
279
Source: Círculo de Empresarios based on Financial Times, 2019
China: 40 years of economic tertiarisation
Currently, China's private sector generates 60% of GDP, 70% of innovation and 90% of job creation
17
China will reach its maximum weight in the mid-2020s accounting for 20% of world GDP. However, its potential growth will
be limited by the 12% drop in the working age population (age 15-64) in 2040
Contribution of major sectors to
Chinese GDP% of total
Evolution of GDP% change in share of global GDP
0
20
40
60
80
100
Primary sector Secondary sector Tertiary sector
27.9
24
11.9
68.6
4.63.9
3.31.8
15.2
1.9
1.6
1978 2018
US
Japan
Germany
UK
ChinaSpain
-40
-20
0
20
40
60
Jan-
18
Feb
-18
Mar
-18
Ap
r-18
May
-18
Jun
-18
Jul-
18
Au
g-18
Sep
-18
Oct
-18
No
v-1
8
Dec
-18
Imports from US
Imports from Europe
Total imports
Source: Círculo de Empresarios based on General Administration of Customs of China and Reuters, 2019
China: leading indicators dwindling
18
The slowdown in China's main economic indicators continues
Industrial activity in China% YoY change
Evolution of Chinese imports$, % YoY change
Protectionist measures
5
6
7
8
9
10
11
12
13
14
Dec
-13
Apr
-14
Jul-
14
Oct
-14
Feb
-15
May
-15
Aug
-15
Nov
-15
Mar
-16
Jun-
16
Sep
-16
Dec
-16
Apr
-17
Jul-
17
Oct
-17
Feb
-18
May
-18
Aug
-18
Nov
-18
Industrial production Retail sales
Source: Círculo de Empresarios based on Bloomberg, 2019
China: the yuan and the stock markets fall in 2018The appreciation of the dollar, the divergence of monetary policy with the US, the trade war* and the signs of slowdown in Chinese GDP explain this evolution
Exchange rate USD/CNY1 dollar = 6.88 yuan
China’s stock market, CSI 300
The CSI 300 index consists of the 300 largest & most liquid A-share
stocks Chinese companies.
* The IMF estimates that the trade war will have an impact of 1.6% of GDP on China in 2019
19
6
6,2
6,4
6,6
6,8
7
7,2
0
1000
2000
3000
4000
5000
6000
Dec
-13
Mar
-14
Jun
-14
Sep
-14
De
c-1
4
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
De
c-1
7
Mar
-18
Jun
-18
Sep
-18
Dec
-18
20
Latin America: growth hinged on China's progress, Trump's
protectionism and the appreciation of the dollar
Source: Círculo de Empresarios based on Bloomberg & BIS, 2019
Growth forecasts in Latin America & the Caribbean% annual
Public debt, Main countries in Latin America% of GDP
0
10
20
30
40
50
60
70
80
Argentina Colombia Peru Mexico Chile Brazil
In foreign currency ($)
In national currency
-2
0
2
4
6
Protectionism
Expansive Tax Policy in USSharp deceleration in China
Baseline
21
Brazil: pensions spending accounts for more than 50%
of the annual budget
Source: Círculo de Empresarios based on Bloomberg & BIS, 2019
After a 7.3% loss during the recession (2015-16), the current design of the pension system
(12% of GDP vs 8% OECD) hinders the balance of public finances
Spending on pensions has been one of the
main factors that has skyrocketed public
debt from 52% of GDP in 2013 to 77% today
Public pensions spending% of GDP
Public debt% of GDP
50
55
60
65
70
75
80
Jan-
13
Jun
-13
No
v-1
3
Ap
r-1
4
Sep
-14
Feb
-15
Jul-1
5
Dec
-15
May
-16
Oct
-16
Mar
-17
Au
g-1
7
Jan-
18
Jun
-18
No
v-1
8
0 10 20
United States
UK
OECD
Japan
Germany
Brazil
France
Italy
Greece
2015 Forecast 2050
Source: Círculo de Empresarios based on Reuters, 2019
US: the economic slowdown commences
Annual growth forecasts for real GDP
%
2020
2.9 2.5 1.8
20192018
22
After 113 consecutive months of growth, the US is expected to grow at a slower pace
3.44.22.2
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2.6 2.3 2.5 2.2 2
Source: Círculo de Empresarios based on J.P. Morgan & NBER, 201923
US: economic sentiment wanes
Daily estimate for real GDP growth
by Fed Atlanta (GDPNow)Year-on-year change (%)
Business sentiment index Points
The US economy has grown for 116 consecutive months, although growth
expectations begin to deteriorate
0
1
2
3
4
5
6
Daily GDP
Q1 moving average
54.1
46
48
50
52
54
56
58
60
62
Dec
-13
Ap
r-1
4
Au
g-1
4
Dec
-14
Ap
r-1
5
Au
g-1
5
Dec
-15
Ap
r-1
6
Au
g-1
6
Dec
-16
Ap
r-1
7
Au
g-1
7
Dec
-17
Ap
r-1
8
Au
g-1
8
Dec
-18
ISM index Moving average (20)
Source: Círculo de Empresarios based on J.P. Morgan, Bloomberg, & University of Michigan, 201924
US: a healthy job creation rate is maintained
Philadelphia Fed Manufacturing indexPoints
US job creation
People
0
5
10
15
20
25
30
35
40
0
50000
100000
150000
200000
250000
300000
350000
400000
Jan
-13
May
-13
Sep
-13
Jan
-14
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
Sep
-18
US job creation Moving average (20)
Source: Círculo de Empresarios based on NY & St. Louis Fed, Goldman Sachs, & Bloomberg, 2019
25
US: inverted yield curve stresses the stock market investors
10-year/2-year US Treasury spread %
Historically, an inverted yield curve has been the single best indicator that a recession is coming in the next 12 to 24 months**
US Treasury yield curve%
After a decade, the yield curves (2y-5y) have inverted and the 2y-10y spread is close to 0bp *
* The consensus of analysts is justified by waning tension between US-China that has led to purchases in
assets with higher risk (long-term) and a possible end to the expansion phase of the economic cycle
** Out of the 8 times the 2y-5y yield curve inverted since 1972, in 6 of them there was a recession in the next 2 years
0
1
2
3
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
Jun
-16
De
c-1
6
Jun
-17
De
c-1
7
Jun
-18
De
c-1
8 1
2
3
4
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 30Y
12/26/18 12/01/18 06/01/18
Source: Círculo de Empresarios based on NY & St. Louis Fed, Goldman Sachs, & Bloomberg, 2019
26
US: probability of recession on the rise
* According to PIMCO, the risk of recession is around 30% (a 9-year record high)
Probability of a recession in the US*
% (next 12 months)
The possible future recession will occur in a scenario with a twin deficit (fiscal + current account) higher
than in 2007 in which the fiscal deficit shows a worse performance
Fiscal & current account deficit in the US% of GDP
-14
-12
-10
-8
-6
-4
-2
0
2
4
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
Jan
-19
Current account
Fiscal
Twin deficits0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Jan
-00
Dec
-00
No
v-0
1
Oct
-02
Sep
-03
Au
g-0
4
Jul-
05
Jun
-06
May
-07
Ap
r-0
8
Mar
-09
Feb
-10
Jan
-11
Dec
-11
No
v-1
2
Oct
-13
Sep
-14
Au
g-1
5
Jul-
16
Jun
-17
May
-18
Ap
r-1
9
Source: Círculo de Empresarios based on NY & St. Louis Fed, Goldman Sachs, & Bloomberg, 2019
27
Fed: Trump pressures Powell to avoid further interest rate
hikes but in vain2018 closes with 9 consecutive increases in interest rates since the Fed commenced its
monetary policy normalisation
September projection
December projection 2018 2019 2020 2021 Longer run
Change in real GDP 3 2.3 2 1.8 1.9 September projection 3.1 2.5 2 1.8 1.8
Unemployment rate 3.7 3.5 3.6 3.8 4.4 September projection 3.7 3.5 3.5 3.7 4.5
PCE inflation 1.9 1.9 2.1 2.1 2 September projection 2.1 2 2.1 2.1 2
Core PCE inflation 1.9 2 2 2 September projection 2 2.1 2.1 2.1
Federal funds rate 2.4 2.9 3.1 3.1 2.8 September projection 2.4 3.1 3.4 3.4 3
0
1
2
3
4
Source: Círculo de Empresarios based on US Bureau of Economic Analysis (BEA), Focus Economics, & St. Louis Fed, 2019
28
US: 2018 closes with a new interest rate hike by the FedThe interest rates are around 3% and the core PCE*, the indicator most often followed by the
Fed, is close to 2%
US inflation indicatorsYear-on-year change
* Personal consumption expenditures excluding food and energy
Fed benchmark interest rates%
-3
-2
-1
0
1
2
3
4
5
Nov
-08
Apr
-09
Sep
-09
Feb
-10
Jul-
10
Dec
-10
May
-11
Oct
-11
Mar
-12
Aug
-12
Jan-
13
Jun-
13
Nov
-13
Apr
-14
Sep
-14
Feb
-15
Jul-
15
Dec
-15
May
-16
Oct
-16
Mar
-17
Aug
-17
Jan-
18
Jun-
18
Nov
-18
Core PCI PCI Core PCE
0
1
2
3
4
5
6
7
De
c-9
8
De
c-9
9
De
c-0
0
De
c-0
1
De
c-0
2
De
c-0
3
De
c-0
4
De
c-0
5
De
c-0
6
De
c-0
7
De
c-0
8
De
c-0
9
De
c-1
0
De
c-1
1
De
c-1
2
De
c-1
3
De
c-1
4
De
c-1
5
De
c-1
6
De
c-1
7
De
c-1
8
EU: slight lowering of risks
Source: Círculo de Empresarios based on Bloomberg, 2019 29
At 2018 year-end, there was a reduction in the risk premiums induced by the Brexit withdrawal
agreement and the presentation of more conservative budget targets by the Italian
Government.
Difference in 2Y Italy bond vs Eurozone countriesbasis points
241 233200
9 Oct 2018
Risk premium vs benchmark Germanybasis points
* Difference in 10Y bond
250
118131
327
148163
31 Dec 2018 18 Oct 2018 31 Dec 2018
110
95.969
Eurozone: rude awakening at the pace of slowdown
Source: Círculo de Empresarios based on ECB, 2019 30
Shrinking external sector and less investment
A relapse in business investment
due to lower demand growth, the
effects of lowering taxes subside
and the demographic factor
The decline in the production of
German cars adversely affects the
growth of the European economy
in the last quarter of 2018
2018 2019 2020 2021 2018 2019 2020
Real GDP 1.9 1.7 1.7 1.5 2 1.8 1.7
(1.8-2.0) (1.1-2.3) (0.8-2.6) (0.5-2.5) (1.8-2.2) (1-2.6) (0.6-2.8)
Private consumption 1.4 1.7 1.6 1.4 1.5 1.7 1.6
Government consumption 1.1 1.6 1.4 1.4 1.4 1.4 1.3
Gross fixed capital formation 3.5 3.3 2.6 2.1 4 3.2 2.9
Exports 2.8 3.5 3.8 3.4 3.1 3.8 3.6
Imports 2.7 4.2 4.2 3.6 3.5 4.5 3.9
Employment 1.4 0.9 0.8 0.6 1.4 0.8 0.8
Unemployment rate 8.2 7.8 7.5 7.1 8.3 7.8 7.4
HICP 1.8 1.6 1.7 1.8 1.7 1.7 1.7
HICP excluding energy and food 1 1.4 1.6 1.8 1.1 1.5 1.8
Unit labour costs 1.7 1.3 1.6 1.8 1.6 1.3 1.7
Compensation per employee 2.2 2.1 2.5 2.7 2.2 2.2 2.7
Labour productivity 0.5 0.8 0.9 0.9 0.6 0.9 1
-0.5 -0.8 -0.7 -0.6 -0.6 -0.8 -0.5
Structural budget balance (% of GDP) -0.7 -1 -1 -1 -0.8 -1 -1
84.9 83 80.9 79 84.8 82.8 80.6
Current account balance (% del PIB) 3 2.7 2.6 2.5 3.2 2.8 2.8
General government gross debt
(% of GDP)
December 2018 September 2018
General government budget balance
(% of GDP)
Italy: challenges the European Commission against a
backdrop of weakening growth
Source: Círculo de Empresarios based on Bloomberg, & The Economist, 2019 31
Italy’s risk premium narrows as the government
relinquishes its claims to triple the deficit targets
The government expects a 2.04% deficit in 2019
(previously 2.4% was proposed in defiance of
the agreement with Brussels of 1.8%)
Italy GDP forecasts
0
0,5
1
1,5
2
2,5
3
3,5
4Italy 10 year bond yield
Germany 10 year bond yield
10 year bond yield
%
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
Maximum estimate Medium estimate Minimum estimate
2019 2020
France: “yellow vest” protests*
Source: Círculo de Empresarios based on Bloomberg, & The Economist, 2019 32
The deterioration in business confidence and consumption affects the growth of the second
largest economy of the Eurozone
* Some of their demands to the government call for: raising the minimum wage, reducing personal income tax (PIT), imposing higher taxes on
companies and high net worth individuals, and abolishing taxes on fuels
Faced with these demands, the main measures announced by Macron are: increasing the minimum wage by €100 per month as of January 2019
(7% increase), the exemption of taxes & social contributions on overtime pay, a tax-free end of year bonus to employees, and cancelled a
planned tax increase for low-income retirees (pension <€2000/month)
These economic policy decisions could result in France running a deficit above 3% in 2019
Manufacturing business sentiment indexPointsGDP growth
% QoQ change
-0,4
-0,2
0
0,2
0,4
0,6
0,8
1
1Q2014
2Q2014
3Q2014
4Q2014
1Q2015
2Q2015
3Q2015
4Q2015
1Q2016
2Q2016
3Q2016
4Q2016
1Q2017
2Q2017
3Q2017
4Q2017
1Q2018
2Q2018
3Q2018
113
104
95
97
99
101
103
105
107
109
111
113
115
Ma
r-1
4
Jun
-14
Sep
-14
Dec
-14
Ma
r-1
5
Jun
-15
Sep
-15
Dec
-15
Ma
r-1
6
Jun
-16
Sep
-16
Dec
-16
Ma
r-1
7
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun
-18
Sep
-18
Dec
-18
Germany: economic contraction in Q3-2018
Source: Círculo de Empresarios based on Bloomberg, & The Economist, 2019 33
An already low confidence of German businesspersons is further exacerbated by the statements of
the Minister of Finance* and the uncertainty tied with Merkel’s departure from the Government
80
85
90
95
100
105
110
Jun
-08
Jan
-09
Au
g-0
9
Mar
-10
Oct
-10
May
-11
Dec
-11
Jul-
12
Feb
-13
Sep
-13
Ap
r-1
4
No
v-1
4
Jun
-15
Jan
-16
Au
g-1
6
Mar
-17
Oct
-17
May
-18
Dec
-18
ifo German Business Climate Index
Points
Production in Germany Quarter-on-quarter change (%)
* Statements by the German Minister of Finance, Olaf Scholz: "The good times in which the State kept taking in more taxes than expected are
coming to an end. Germany's "fat years" of windfall tax receipts are over"
-1,5
-1
-0,5
0
0,5
1
Q1
20
13
Q2
20
13
Q3
20
13
Q4
20
13
Q1
20
14
Q2
20
14
Q3
20
14
Q4
20
14
Q1
20
15
Q2
20
15
Q3
20
15
Q4
20
15
Q1
20
16
Q2
20
16
Q3
20
16
Q4
20
16
Q1
20
17
Q2
20
17
Q3
20
17
Q4
20
17
Q1
20
18
Q2
20
18
Q3
20
18
Q4
20
18
Germany Quarterly GDP
Germany industrial production
The ECB puts an end to monthly net assets
34Source: Círculo de Empresarios, 2019
After €2.6 trillion of liquidity injection via bond purchases, the ECB's balance increase will gradually normalise
Italy's stand off with the EuropeanCommission, the waning confidence inFrance’s economic progress, Trump’s
protectionism, and the consequences ofBrexit will determine the future of this ECBdecision to run a stimulus programme
Despite injecting liquidity, inflation in theEurozone is below 2% and forecastsestimate that it will remain between 1.1% -
2.1% in 2019
Net monthly assets by the ECB€ bn
End of purchases
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
Oct
-14
Dec
-14
Feb
-15
Ap
r-15
Jun-
15
Aug
-15
Oct
-15
Dec
-15
Feb
-16
Apr
-16
Jun-
16
Au
g-16
Oct
-16
Dec
-16
Feb
-17
Ap
r-17
Jun-
17
Aug
-17
Oct
-17
Dec
-17
Feb
-18
Ap
r-18
Jun-
18
Au
g-18
Oct
-18
Dec
-18
35Source: Círculo de Empresarios based on The Bank of England, 2019
UK: negative impact of Brexit 2018The impact of Brexit is already evident in the UK economy
From May 2016 to December 2018*
-15%
-2.1%
-4%
POUND DEPRECIATION
GDP REDUCTION
LOSS OF INVESTMENT
Bank of England forecasts (BOE)GDP percentage points
The BOE estimates a decline in GDP of between
1.25% and 10.5% from mid-2016 to 2021,
depending on the final exit scenario of the UK**
** 7.75% if calculated from Nov-2018, accompanied by a 30% fall
in house prices and a 7.5% increase in unemployment rate* Calculated on 13 Dec 2018
-3.5% CURRENT ACCOUNT DEFICIT
1.25
3.75
7.75
10.5
1.75
3.754.75
7.75
0
2
4
6
8
10
12
Impact since May 2016 Impact since Nov 2018
No-deal: Disorderly Brexit
Brexit with trade deal
36Source: Círculo de Empresarios based on The Bank of England, 2019
United Kingdom: political and institutional crisisThe British parliament rejected by a difference of 230 votes against the proposal
for UK’s departure from the EU and May wins the no-confidence vote
Result of the Brexit withdrawal voteNumber of MPs with vote
Forex market£
432
202
Against the proposal
In favour of the proposal
Undeclared
75
80
85
90
95
100
105
Dec
-15
Feb
-16
Ap
r-1
6
Jun
-16
Au
g-1
6
Oct
-16
Dec
-16
Feb
-17
Ap
r-1
7
Jun
-17
Au
g-1
7
Oct
-17
Dec
-17
Feb
-18
Ap
r-1
8
Jun
-18
Au
g-1
8
Oct
-18
GBP / USD GBP / EUR
New possible pathways: Hard Brexit on March 29, reaching a new agreement, extend negotiating period,
second referendum, general elections...
Oil goes bearish (I)
Source: Círculo de Empresarios based on Bloomberg, 2019 37
In the wake of US pressure on OPEC not to cut supply and the refusal of some countries to cut production, the OPEC target stands at 1.2 million barrels per day (mbd)
Reasons for oil price increasing in 2018...
2 Venezuela's Collapse
1 Sanctions on Iran &
tensions with the US
3 OPEC’s decisions
Reasons for the current downward
trend of oil...
Nonetheless...
2 US pressure
(via politics & oil production)
1 Moderate demand levels
3 OPEC losing ability to influence
oil prices
Oil goes bearish (II)
Source: Círculo de Empresarios based on Bloomberg, 2019 38
The lower global growth, mainly in China & Europe, and higher oil production explain the recent fall in oil price
Oil production in the USThousand Barrels
Venezuela
216$ 127$
OPEC's fiscal break-even to balance its budget(price of oil to balance their fiscal budget)
Nigeria Libya
114$ 111$
Bahrain Saudi Arabia
88$ 84$
Algeria Angola
83$
Ecuador
78$ 77$ 72$
Oman Iran
72$
UAE
55$
Iraq
53$
Russia Kuwait
48$
Qatar
47$
WTI: 48$ Exit from OPEC in 2019
40
45
50
55
60
65
70
75
80
Crude oil price of WTI barrel (West Texas Intermediate) $ per barrel
3
4
5
6
7
8
9
10
11
12
13
Stock markets: in 2018, stock markets drop amid a
more volatile environment (I)
39Source: Círculo de Empresarios based on Reuters, 2019
World Stock Index (MSCI WORLD)January 2018=100
VIX Volatility index
80
85
90
95
100
105
110
0
10
20
30
40
50
60
Stock markets: the political & economic uncertainty hit
stock returns in H2 2018 (II)
40Source: Círculo de Empresarios based on Reuters, 2019
From annual highs in 2018:
Nasdaq: -12.9%
Dow Jones: -9.7%
S&P 500: -10.7%
Stoxx 600: -13%
Topix Japón: -19.5%
The trade war, the fall in oil prices, the
lower growth rates and a foreseeable
moderation in the upward trend of
the Fed rate hike in 2019
Main stock market indicesJanuary 2018=100
70
75
80
85
90
95
100
105
110
115
120
S&P 500 Topix Stoxx 600 Nasdaq Dow Jones
41Source: Círculo de Empresarios based on Reuters, 2019
Stock markets: by sectors, the biggest falls were in
banks (III)In Europe, there is a notable decline in the banking sector due to negative interest rates,
Brexit, and uncertainty about Italy’s solvency
Annual evolution of stock marketsJanuary 2018=100
By sectors, annual evolution of stock markets, 2018*Year-on-year change
* 8 January 2019 vs 8 January 2018
60
70
80
90
100
110
120
Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
STOXX 600 STOXX bancos S&P 500
US sectors (S&P 500)
Europe sectors(Stoxx 600)
Banks -17 -27.2
Consumer discretionary 0.8 -16
Commodities -18.2 -20.5
Industry -15.7 -16
Telecom -7 -12.5
Real state -3.8 -11.7
Basic consumption -10.6 -11.2
Technology -5.57 -14
Energy -19 -4
Healthcare 1.2 -3.6
Utilities 2 -2.7
General index -7 -13.7
Stock markets: worst year for the US stock market
since the financial crisis (IV)
42Source: Círculo de Empresarios based on Reuters, 2019
The foreseeable economic
slowdown, the trade war, and the
partial shutdown of Trump’s
government cause the S&P 500to close 2018 as its worst year
since the financial crisis
Despite the support of Trump's expansionary fiscal policy, the S&P 500 falls by 7% in 2018
In fact, it is the worst December
for the S&P 500 since 1931(Great Depression)
The S&P 500 posts 17 days in which falls have been over 2%, its record high since 2011
Evolution S&P 500January 2018=100
-15
-10
-5
0
5
10
2.92.6
1.9 1.9
0.80.5
-0.1-0.3
-0.6 -0.6-1
-0,5
0
0,5
1
1,5
2
2,5
3
3,5
43Source: Círculo de Empresarios based on Reuters, 2019
Fixed income: in the last months, the IRR of the
long-end of the curve fallsThe uncertainty arising from not knowing when the economic cycle ends exerts an upward pressure on the prices of longer duration bonds
10-year Treasury yield, US, Germany, & Japan%
2-year Treasury yield, main countries%
The persistence of
negative rates in the
short-end of the
European curves
stands out
-0,1
0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
0,8
0,9
2
2,2
2,4
2,6
2,8
3
3,2
3,4
US 10Y (left axis) Germany 10y (right axis) Japan 10y (right axis)
45
Executive Summary
Spain’s economy grows at a slower pace affected by global and national uncertainties. The Government
forecasts that Spain will grow by 2.6% in 2018 and 2.2% in 2019, while other organisations expect it to expand by
2% in 2018 and 2.1% in 2019. This trend will slow down job creation and the reduction of public debt
An uncertain international context is upheld, marked by the downward revision of global growth and trade
forecasts, mainly due to Trump's protectionism, the monetary policy normalisation by central banks, the
uncertainty about Brexit, and future developments of China and the Eurozone
Internally, political and institutional instability continues, especially in Catalonia, and the paralysis of the reform
impulse persists in a context of a slowdown in Spain’s economy. The General Budgets of the State 2019 (PGE2019) presented by the Government do not include measures that allow progress in competitiveness and in the
improvement of productivity of our country, key elements to generate quality employment and make strides in
the levels of wealth and well-being
Risks
46
• Persistence of structural unemployment and the negative impact of the minimum wage raise on employment
• In the current context of parliament fragmentation and minority government:
o Paralysis of the reform impulse prolongs
o Indetermination about the future orientation of economic policies and the budget
consolidation process
• Monetary policy normalisation
• Uncertainty generated by the announcements of fiscal policy: creation & increases of taxes and soaring public expenditure without structural reforms
• Weak growth of the Eurozone and world trade
• Rising political tensions in Catalonia
• Impact of a possible Brexit
• The stagnation of productivity and a decline in competitiveness
47
2018*2017
3%
* Forecast
Source: Círculo de Empresarios based on The Bank of Spain, FUNCAS and the Institute of Economics Studies (IEE), 2019
The Bank of Spain continues to lower its forecasts in line with the main national and international economic organisations
2.5%
2019*
2.2%
Spain’s economy on a gradual path of
growth deceleration
2020*
1.9%
2021*
1.7%
For 2019, FUNCAS forecasts Spain’s economy to expand by 2.1% and the Kiel Institute for the World Economy (Germany) by 2%
48Source: Círculo de Empresarios based on the Ministry of the Treasury, 2019
The Government has updated the macroeconomic scenario, lowering the growth forecast for 2019 to 2.2%
New macroeconomic scenario PGE 2019
In 2019, domestic demand will continueto be the driving force of economicgrowth, although the progress inhousehold consumption and investmentis reduced
% YoY change (unless otherwise indicated) 2018 2019Real GDP 2.6 2.2
GDP, current prices (€ bn) 1208.8 1255.3
Final domestic consumption 2.2 1.7
Private sector 2.3 1.7
Public Administrations 1.9 1.4
Gross capital formation 5.5 4.3
Changes in inventories (contribution to GDP growth) 0 0
Domestic demand (contribution to GDP growth) 2.9 2.2
Exports of goods and services 2.4 2.8
Imports of goods and services 3.5 3.1
External demand (contribution to GDP growth) -0.3 -0.1
GDP deflator 1 1.7
Total employment 2.5 1.8
Productivity per employee 0.1 0.3
Unemployment rate (% labour force) 15.5 14
In Q4 2018, the pace of GDP growth will slow down to 2.3% YoY
The pace of GDP growth heralds the beginning
of the deceleration phase
49
GDP (year-on-year change)
and contribution of domestic & external demand (pp)
Spain will end 2018 by growing above the Eurozone average, a trend that has been maintained since Q3 2014
Q3 2018: new negative contribution from the external sector (-0.4pp)
Source: Círculo de Empresarios based on The Bank of Spain & INE, 2019
2.3
3.63.9
4.1
3.63.3
3.1
2.72.9
3.12.9
3.12.8
2.5 2.4 2.3
-1
0
1
2
3
4
5
Q1
201
5
Q2
201
5
Q3
201
5
Q4
201
5
Q1
201
6
Q2
201
6
Q3
201
6
Q4
201
6
Q1
201
7
Q2
201
7
Q3
201
7
Q4
201
7
Q1
201
8
Q2
201
8
Q3
201
8
Q4
201
8*
Spain's domestic demand Spain's external demand
Spain's GDP Eurozone's GDP
* Forecast by the Bank of Spain
Growth by Autonomous Communities
In Q3 2018, Aragon was in the vanguard of the year-on-year growth followed by Galicia,
the Community of Madrid and the Basque Country
Source: Círculo de Empresarios based on AIReF, 2019
Evolution of GDP of the Autonomous Communities% year-on-year change
50
3.12.8 2.8 2.7 2.6 2.6 2.6 2.5 2.5 2.4 2.3 2.2 2.1 2 2 1.9 1.9 1.8
Ara
go
n
Gal
icia
C.
Ma
dri
d
Ba
squ
eC
ou
ntr
y
Ca
nar
y I.
Val
en
cian
C.
C.F
. Nav
arra
R.
Mu
rcia
Spai
n
Ca
talo
nia
Ca
nta
bri
a
An
da
lusi
a
Ba
lea
ric
I.
Ca
stile
an
dLe
on
Extr
ema
du
ra
P. A
stu
rias
Ca
stile
- L
aM
anch
a
La R
ioja
Q4 2017
Q3 2018
Recovery of Spain’s economy
Evolution of real GDP per capitaConstant prices; 1999=100
Evolution of real GDPConstant prices; 1999=100
Spain’s real economy exceeds the levels of GDP and GDP per capita prior to the crisis
Since the euro entered into circulation, GDP has grown by 41.6% and GDP per capita by 23%
in real terms
Source: Círculo de Empresarios based on IMF, 2019
90
95
100
105
110
115
120
125
130
135
140
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Germany
Spain
France
Greece
Italy
100
105
110
115
120
125
130
135
140
145
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Spain
Germany
France
Italy
Greece
51
PMIs in decline
52Source: Círculo de Empresarios based on Reuters, 2019
Spain PMIsA reading above 50 indicates an expansion of the manufacturing/services sector compared
to the previous month; below 50 represents a contraction; while 50 indicates no change
The Manufacturing PMI is closeto the previous minimum (51) of
2016, while the Services PMI hasexperienced a slight upturn
Spain continues the downward trend in manufacturing & services PMIs, although it
remains above 50 since 2013
The moderation in the PMIs
confirms the deceleration ofSpain’s economy in the coming
quarters
55.6
52.4
56.1
51.4
52.6
51.1
58.3
54.4
57.3
52.5
54
Manufacturing PMI Services PMI
53Source: Círculo de Empresarios based on INE & Eurostat, 2019
Inflationary pressures deflate
Spain’s economy regains
competitiveness via price by
establishing the price level, once
again, below that of the Eurozone
2018 closes with inflation that is one-
tenth higher than the previous year
The difference with core inflation
narrows as energy prices moderate
Evolution of prices% change year-on-year
1.2
0.9
1.6
0
1
2
3
Dec
-16
Jan
-17
Feb
-17
Ma
r-1
7
Ap
r-1
7
May
-17
Jun
-17
Jul-1
7
Au
g-1
7
Sep
-17
Oct
-17
Nov
-17
Dec
-17
Jan
-18
Feb
-18
Ma
r-1
8
Ap
r-1
8
May
-18
Jun
-18
Jul-1
8
Au
g-1
8
Sep
-18
Oct
-18
Nov
-18
De
c-1
8
Spain headline CPI Spain core* CPI
Euro area headline CPI
* General index without unprocessed foods and energy products
54Source: Círculo de Empresarios based on Ministry of Labour, Migrations & Social Security, 2019
Evolution of affiliation & registered unemploymentPeople and % change year-on-year December/December
Job creation moderates & unemployment falls
The progressive increase in affiliates raises the affiliates-to-pensioners ratio to 2.28, from 2.23 in December 2017
Affiliates-to-Pensioners ratio
Registered unemployment & affiliation return to pre-crisis levels
For the whole year, the number of affiliatesincreased by 563,965 people, exceeding 19 million for the first time since 2008
Lower growth forecasts predict a slowdown in job creation from 2.5% per year in 2018 to 1.6% in 2019
2.662.62
2.56
2.47
2.34
2.27 2.25 2.25 2.272.23
2.28
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-5.4
-8
-9.5
-7.8
-6.2
2.63.2 3.1 3.4 3.1
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
18000000
20000000
2008 2014 2015 2016 2017 2018
Unemployment (left axis) Affiliates (left axis)
Unemployment decrease (right axis) Affiliation increase (right axis)
Persons %
Spain continues to lead unemployment rates
in Europe
55Source: Círculo de Empresarios based on Eurostat, 2019
Spain is the 2nd country of the EU28 in total and youth unemployment after Greece. However,
since its 2013 peak, unemployment has fallen by
43.9% (-38.5% in the EU)
Unemployment rates, EU 28November 2018, % of the active population
Total and youth unemployment rateAugust 2018, % of the active population
18.6 14.7 10.536.6 34.1 31.6
Total
< 25 years
18.6
14.7
10.5
8.97.9
6.7 6.65.3
4.13.5 3.3
-32.4 -43.9 -14.6 -12.7 -34.2 -38.5 -58.8 -60.2 -46.1 -53.3 -36.5
Unemployment Nov. 2018
▼2018/2013 (%)
Trends in real estate
56Source: Círculo de Empresarios based on The Spanish Society of Appraisers, 2019
Real Estate Confidence Index*
Min=0 ; Max=100
In Q4 2018, the Confidence Index dipped, for the
second consecutive quarter, to 57 points
* Real Estate Confidence Index: is prepared based on the opinion of more than 700 professionals about the economic & real estate aspects of the areas where they carry out their professional activities. ** The Real Estate Effort Index is defined as the number of years of full salary that an average citizen would need to allocate to the purchase of a medium-sized house.
The Real Estate Effort Index makes headway and is at
7.6 years of salary to buy a typical residential property
Real Estate Effort Index**
Years
13.7
7.6
7.8
7.27.6
7
8
9
10
11
12
13
14
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
13
20
15
20
16
20
17
20
18
30.6
58.557
30
35
40
45
50
55
60
Q1
201
2
Q2
201
2
Q3
201
2
Q4
201
2
Q1
201
3
Q2
201
3
Q3
201
3
Q4
201
3
Q1
201
4
Q2
201
4
Q3
201
4
Q4
201
4
Q1
201
5
Q2
201
5
Q3
201
5
Q4
201
5
Q1
201
6
Q2
201
6
Q3
201
6
Q4
201
6
Q1
201
7
Q2
201
7
Q3
201
7
Q4
201
7
Q1
201
8
Q2
201
8
Q3
201
8
Q4
201
8
Public debt remains close to 100% of GDP
57Source: Círculo de Empresarios based on the Ministry of the Treasury, The Bank of Spain, OECD, & IMF, 2019
Public debt & Primary deficit% of GDP
Public debt is slightly reduced, explained by nominal GDP growth, but remains well abovethe 60% target established in the Maastricht criteria
Forecasts 2018 & 2019 % of GDP
Public deficitPublic debt
2018 2019 2018
OECD
IMF 97.3 96 -2.8 -2.3
97.7 96.5 -2.7 -1.8
2019
In Q3 2018, public debt reached
98.3% of GDP
Government 96.9 95.4 -2.7 -1.3
Less optimism in the forecasts on fiscal
consolidation of the OECD and the IMF
35.6
100.4 98.1
-12
-10
-8
-6
-4
-2
0
2
4
6
30
40
50
60
70
80
90
100
110
Jan
-05
Aug
-05
Ma
r-0
6
Oct
-06
Ma
y-0
7
Dec
-07
Jul-
08
Feb
-09
Sep
-09
Apr
-10
Nov
-10
Jun-
11
Jan
-12
Aug
-12
Ma
r-1
3
Oct
-13
Ma
y-1
4
Dec
-14
Jul-
15
Feb
-16
Sep
-16
Apr
-17
Nov
-17
Jun-
18
Jan
-19
Aug
-19
Ma
r-2
0
Oct
-20
Public debt (left axis)
Primary balance (excluding interest) (right axis)
Forecast
The structural deficit hinders debt reduction
58Source: Círculo de Empresarios based on AMECO, 2019
Public deficits% of GDP
It is expected that Spain’s economy will run a slight primary surplus in 2019
In 2019, Spain run a public deficit at
1.3% of GDP compared to the 2.7%expected in 2018, an adjustment of €13
billion
In 2018, virtually no progress was made
in fiscal consolidation, closing thedeficit at 2.7% of GDP compared to
2.2% established in the General StateBudget (PGE 2018)
-7.5
-0.5
-0.30.1 0.2
-10.5
-3.1
-2.7 -1.9
-1.5
-3.3
-2.9
-3.1 -3.1
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Excluding interest
General
Structural
Forecast
-1.3 -0.5
Target
Deviation in the Social Security deficit
59Source: Círculo de Empresarios based on the Social Security & the Ministry of the Treasury, 2019
Social Security Balance% of GDP
The increase in public expenditure on
pensions, due to the measures approved by
the Government to increase their amount,
their revaluation according to the CPI and
the aging of the population, has a negative
impact on the correction of the structural
deficit and debt
The Bank of Spain, in a scenario of a
revaluation of the average pension
according to the CPI and a delay in the
effective date of the sustainability factor to
2023, forecasts an increase in pension
expenditure (currently around 12% of GDP):
2030 2050
+1.9 pp of GDP
+3.4 pp of GDP
In 2018, it is expected that the Social Security deficit will be 1.5% of GDP
* Forecast
The Government has approved a loan of €15 billion (1.2% of GDP) to
pay the extra pension payments in 2019
In addition, the draft for PGE 2019 includes a €850 million transfer to
the Social Security to support its budget sustainability
0.7 0.7
-0.2-0.1
-1 -1.1 -1 -1.2-1.6 -1.4 -1.5
-0.9
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* 2019*
Unrealistic income forecast in the PGE 2019
60Source: Círculo de Empresarios based on the Ministry of the Treasury, 2019
The draft for the General State Budget in 2019 (PGE 2019) expects a 9.2% increase in non-financial income with respect to the advance in the settlement of 2018
Tax revenues, by values% of total
The collection of Corporate Income Tax (CIT) would
increase, according to the submitted draft for PGE,
by 14.1% with respect to its estimated settlement in
2018, and that of VAT by 11.7%
Optimists because
➢ Since 2014, there has been a lower annual average
tax revenue by €6.39 billion than budgeted
➢ A reduction in corporate margins is expected in 2019
39.7
33.8
11.6
9.95
38
34.4
12.1
10.1
5.4 PersonalIncome Tax
VAT
Corporate Tax
Special Taxes
Other
2018
2019
Lending to the private sector
61Source: Círculo de Empresarios based on The Bank of Spain, 2019
Rapid growth in new lending operations in recent months in a context of favourable conditions for the access to financing
Increase in lending to householdsdue to less decline in loans for
housing purchases and an
increase in loans for consumption
and other purposes
Rise in financing provided to non-
financial companies as a result ofmore funds being raised through the
issue of fixed-income instruments
-4
-2
0
2
4
6
8
Oct
-16
Nov
-16
De
c-1
6
Jan
-17
Feb
-17
Mar
-17
Ap
r-1
7
Ma
y-17
Jun
-17
Jul-
17
Au
g-1
7
Sep
-17
Oct
-17
No
v-1
7
De
c-1
7
Jan
-18
Feb
-18
Ma
r-1
8
Ap
r-1
8
May
-18
Jun
-18
Jul-1
8
Au
g-1
8
Sep
-18
Oct
-18
Households
Companies
House purchase
Consumption and other
Assets & wealth of households and companies
continues to strengthen
62Source: Círculo de Empresarios based on The Bank of Spain, 2019
Evolution of debt & interest burden% GDHI (households) and % of GDP (companies)
Distribution of household wealth% GDHI (Gross Disposable Household Income)
Since 2013, the net worth of families has increased
mainly due to the revaluation of real estate
790 822 819 845884 912
-200
0
200
400
600
800
1000
1200
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Financial assets Housing wealth
Liabilities Total wealth
Households Companies
2
3
4
5
70
75
80
85
90
95
100
105
110
115
120
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Q1
20
18
Q2
20
18
Q3
20
18
Debt (left axis)
Interest burden (right axis)
2
3
4
5
6
7
8
95
100
105
110
115
120
125
130
135
Q2
20
09
Q1
20
10
Q4
20
10
Q3
20
11
Q2
20
12
Q1
20
13
Q4
20
13
Q3
20
14
Q2
20
15
Q1
20
16
Q4
20
16
Q3
20
17
Q2
20
18
Debt (left axis)
Interest burden (right axis)
External sector: financing capacity
63Source: Círculo de Empresarios based on The Bank of Spain, 2018
In Q3 2018, in cumulative terms of 4 quarters, the financing capacity (aggregate balance of the current and capital account) diminished by 1.03 points of GDP since Q4 2016 to 1.45% of GDP
In Q3 2018, the net international investment position (NIIP) recorded a negative balance equivalent to
80.6% of GDP, compared with 82.7% of GDP in Q2
The gross external debt* stood at 167.4% of GDP (168.2% of GDP in Q2 2018)
* Composed of the financial instruments included in the liabilities of the IIP except those of variable income (shares, other equity, & investment funds) and financial derivatives
Capacity to finance (+) / Need for finance (-)% of GDP; cumulative value for last 4 quarters
-1.2
2.1
1.5
2.5
1.5
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Sep
-12
De
c-12
Ma
r-13
Jun
-13
Sep
-13
De
c-13
Ma
r-14
Jun
-14
Sep
-14
De
c-14
Ma
r-15
Jun
-15
Sep
-15
De
c-15
Ma
r-16
Jun
-16
Sep
-16
De
c-16
Ma
r-17
Jun
-17
Sep
-17
De
c-17
Ma
r-18
Jun
-18
Sep
-18
Capital accountIncome and transfersServicesGoodsNet lending (+)/borrowing (-) of general government
Exp
ort
s
Capital goods
Food, beverages and tobacco
Automobile
64
Balance of trade, January – November 2018 Change with respect to the same period of the previous year
Source: Círculo de Empresarios based on Ministry of Industry, Trade and Tourism, 2019
The trade deficit continues to widen
Imp
ort
s
Capital goods
Chemical goods
Energy goods
Exports ▲ 3.4% €263.9 bn
Imports ▲ 6% €294.4 bn
BALANCE ▲ Deficit 34.8% - €30.6 bn
Energy deficit ▲ 19.1%
Sectorial distribution, January – November 2018 (% of total)
19.7
16
15.8
20.6
15.3
14.9
Geographical distribution, January – November 2018(% of total)
Evolution of trade in goods, January – November 2018 January – November, % of GDP
* GDP based on the growth estimate for 2018 by The Bank of Spain = 2.5%
-3.9 -4.4 -4.1-2.9
-1.4 -2.2 -2.1-1.4
-2.1 -2.6-6,0
-1,0
4,0
9,0
14,0
19,0
24,0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Exports Imports Balance
Exports ImportsEurope 71.5 59.6
EU 65.7 53.8
Ameria 10.6 10.6
Asia 9.1 20.8
China 2.2 8.4
Africa 6.5 8.6
Other 2.3 0.4
Tourist arrivals: 82.6 million
Favourable evolution of the tourism sector
65
Arrival and expenditure of international tourists
Source: Círculo de Empresarios based on Turespaña & EGATUR, 2019
In 2018, 82,6 million of international tourists arrived in Spain, 0.9% more than in 2017, and spent €89.7
billion, 3.1% more than in 2017 (Turespaña and EGATUR forecasts)
+0.9% year-on-year
Tourist expenditure: €89.7 billion
+3.1% year-on-year
2018*89.7
87
82.681.9
75
77
79
81
83
85
87
89
2018*2017
Tourist expenditure (€bn)
Tourist arrivals (millions of tourists)
+0.9
YoY
+3.1 YoY
* Forecast
Impact of Brexit on Spain
66Source: Círculo de Empresarios based on The Bank of Spain, INE, and the Ministry of Industry, Trade & Tourism, 2019
Spanish banks have 29.2% of their loans abroad in the UK
20% of tourist income in Spain comes from British travellers
About 7% of Spanish exports go to the UK
In 2017, the UK was the third largest investor in Spain, with 13.3% of the total FDI received
In 2018, there were
127,920 Spaniards residing in the UK
More than 20% of tourists visiting Spain are British
Nationwide headway in company formation
67Source: Círculo de Empresarios based on Statistics of Companies, INE, 2019
Company formationAccumulated Jan-Nov — Count and % year-on-year change
Distribution of company formation, by Autonomous CommunitiesAccumulated Jan-Nov % YoY change and % of the national total
Company formation increased by 0.8% year-on-year accumulated between January and November 2018. Most companies are incorporated in Madrid, Catalonia and Andalusia,
although in Catalonia the creation recedes by 5.6% year-on-year
-30
-25
-20
-15
-10
-5
0
5
10
15
70000
75000
80000
85000
90000
95000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
New companies (left axis)
% YoY change (right axis)
6
-5.6
4.4
-2.7
3.1
-2
-5.3 -5.4
4
9.3
-10
-5
0
5
10
15
20
25 % YoY change
% /total
Interest rates and risk premium
68Source: Círculo de Empresarios based on Reuters & Bloomberg, 2019
The risk premium stands at around 110 basis points and remains well below Italy and at 27bp from Portugal
Risk premiums from Spain, Portugal and Italycompared with the 10-year German bond (bp)
Evolution of Spain’s rating2010-2018
Jan
-10
Jun-
10N
ov-
10
Ap
r-11
Sep
-11
Feb
-12
Jul-1
2D
ec-1
2M
ay-1
3O
ct-1
3M
ar-1
4A
ug-
14Ja
n-1
5Ju
n-15
No
v-1
5A
pr-
16Se
p-1
6Fe
b-1
7Ju
l-17
Dec
-17
May
-18
Oct
-18
Moody´s S&P FitchAaa AAA
AA+AA
AA-
Aa1Aa2
Aa3
A+A
A-
A1A2
A3
BBB+BBB
BBB-
Baa1Baa2
Baa3
Rating
50
100
150
200
250
300
350Spain
Italy
Portugal
69Source: Círculo de Empresarios based on Reuters, 2019
Financial markets
Evolution stock marketJanuary 2018=100
The year has been marked by:
❑ Uncertainty about global economic slowdown
❑ Crisis in emerging markets
❑ Rise in volatility
❑ Interest rate hikes by the Fed
❑ Plummeting oil prices
❑ US-China trade war
❑ Uncertainty over Brexit
❑ Italy's defiant budget challenging the EMU
❑ National political uncertainty and also in Catalonia
❑ Changes to mortgage law
❑ Changes in social issues and employment - Royal Decree 28 Dec 2018
* Includes: continuous market, trading floors of the four stock exchanges, MAB (The Alternative Spanish Equity Market), & Latibex
The IBEX 35 closed 2018 with an annual decline of 15%, below the S&P and in line with Eurostoxx
80
85
90
95
100
105
110
Jan
-18
Feb
-18
Feb
-18
Mar
-18
Apr
-18
May
-18
May
-18
Jun-
18
Jul-1
8
Jul-1
8
Au
g-1
8
Sep
-18
Sep
-18
Oct
-18
Nov
-18
Nov
-18
Dec
-18
Jan
-19
S&P 500 Eurostoxx 50 IBEX 35
70Source: Círculo de Empresarios based on World Economic Forum, FTSE Women Leaders and KPMG, 2018
Global Gender Gap Index 2018
Spain in the Global Gender Gap 2017-18 (WEF)
29th/14
countries
➢ Pay gap
➢ Managerial positions
➢ Technical positions
➢ Remuneration
129
80
69
50
Pillar 4
Political empowerment24
TOP 32018, 149 countries
Norway
Iceland
Sweden
1st
2nd
3rd
Women on Boards of Directors - IBEX 35 (2018)
24.3% < EU 28 Average
< Objective = 40% in 2015 (set in 2007)
France – 41.4% in CAC 40Norway - 38% in OBX 30…
Pillar 1
Economic participation80
Pillar 3
Health and survival93
Pillar 2
Educational attainment47
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‘The quarterly report’, is a publication of the Círculo de Empresarios produced by its Department of the Economy, contains information and opinion from reliable sources. However theCírculo de Empresarios does not guarantee its accuracy and does not take responsibility for any errors or omissions. This document is merely informative. As a result, the Círculo deEmpresarios is not responsible for any uses that may be made of the publication. The opinions and estimates of the Department can be modified without prior warning.