situación · 2018-09-14 · spain economic outlook 3q16 2 the increased vulnerability urges to...

Spain Economic Outlook 3Q16

Spain Economic Outlook

3rd QUARTER

2016


2

The increased vulnerability urges to mitigate uncertainty

about the economic policy to be implemented in upcoming

years

Global economy grows, but modest expansion pace in the

U.S. and Brexit entail a downwards revision for 2017

forecast

In Spain, positive bias is confirmed for 2016, but new

elements in the scenario compel to reduce 2017 growth

foresight


Global


Uncertainty and downwards

Revisions

Global growth

Global factors during the last quarter

4

mainly in advanced

economies

Slightly better than

expected economic

indicators

FED’s doubts and

delays

Brexit


Global growth

Remains around 3%

5 Source: BBVA Research

Global GDP growth Estimates based on BBVA-GAIN (%, QoQ)

Industrial production kept growing

in 2Q

Global trade slightly hastened during 2Q

Confidence in 3Q remained stable at

low levels

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

Ma

r-1

3

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun

-14

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Se

p-1

5

Dec-1

5

Mar-

16

Jun-1

6

Sep-1

6

Point estimation Average of the period


Interest rates

FED will take its time to rise interest rates

6 Source: FOMC, FED

Target Fed Funds rates Economic estimates of FOMC (%) FED’s doubts:

1.Long term growth and productivity

2.Real interest rates’ equilibrium levels

3.Global shocks and their impact in U.S.

Electoral process: uncertainty

influences the timing of interest rate

hikes from the Fed 0.9

1.9

3.0

3.3

0.9

1.6

2.4

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2016 2017 2018 Long term

Mar-16 Jun-16


Brexit

Uncertainty remains high

7

Brexit won Negotiation starts:

up to 2 years

Final agreement:

up to 10 years

High uncertainty

- Impact in markets

- When will the Article 50

be implemented?

Transition period

- Dilemma between political and economic benefits

- Type of trade agreement with EU

- Necessary legislative changes in the UK

- Probable bilateral agreement

- Negative impact , not catastrophic


10

15

20

25

30

35

40

45

50

55

Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16

Eurostoxx 50 S&P

Brexit

Moderate forecast downward bias

8 Source: BBVA Research & Bloomberg

Stock Exchange implicit volatility (%)

Impact on 2017 GDP growth (%)

-1.5%

-0.4%

United

Kingdom

Spain

-0.3% Eurozone

Shock

China I Shock

China II

Brexit


U.S.

Spain

Eurozone

China

2017 2016

9 Decrease Unchanged Increase

Global growth

Downwards revision in developed countries

2017 2016

2017 2016

2017 2016

Source: BBVA Research

1.6 2.0

3.1 2.3

1.6 1.5

6.4 5.7

3.0 3.2

World

2017 2016

Latin America

2017 2016

2.2 - 0,0


10

Sh

ort

term

pro

bab

ilit

y

Severity Source: BBVA Research

Vulnerability in

emerging

countries (firms

indebtedness)

Brexit,

european

institutional

crisis, Italy,

Greece… Financial crisis

in China

Global risks

A complex geopolitical scenario

Slowing US

Economy (“Trump effect”)


Eurozone

Brexit negatively affects EMU GDP growth

11 (f): forecast

Source: BBVA Research, Eurostat

Eurozone: GDP growth (YoY, %) Better than expected data (1Q),

mainly from domestic demand

Interest rates will remain low during

an extended period of time

Brexit and associated uncertainties

weigh on prospects despite favorable

monetary and fiscal policies

Other risks: the refugee crisis,

political uncertainty and Greece

- 0.2

0.9

1.6 1.6 1.5

-1

0

1

2

2013 2014 2015 2016 2017 (f) (f)


12 (f): forecast

Source: BBVA Research, BEA

U.S: GDP growth (YoY, %)

Political risks: polarization and

elections

Downward revision in 2016:

1. Lower than expected GDP growth

2. Higher global uncertainty and

concerns about productivity growth

Fed policies: softer hikes due to

domestic and global doubts

U.S

Downward revision despite consumption strenght

1.5

2.4 2.4

1.6

2.0

0

1

2

3

2013 2014 2015 2016 2017 (f) (f)


China

Growth and slow imbalances adjustment

13 (f): forecast

Source: BBVA Research, CNBS

China: GDP growth (YoY, %)

High tail risks:

1. Exchange rate depreciation, capital

outflows

2. Housing market recovery

3. Indebtedness of business and

financial situation

4. Worsening global trade

Authorities prioritize a sufficiently

high growth even at the expense of

slower reforms

7.7 7.3

6.9 6.4

5.7

0

1

2

3

4

5

6

7

8

9

2013 2014 2015 2016 2017 (f) (f)


Spain


Positive bias in 2016 is confirmed

Expected growth for 2017 is revised downwards

15 Source: BBVA Research based on INE

2015

2017

2016

3.2% 3.1%

2.3%



Activity grows despite uncertainty in the short term

16 (e): estimate

Source: BBVA Research based on INE

Spain: GDP growth (% QoQ, MICA BBVA model)

1S16 growth stayed at around 0.8

QoQ, with no signs of a slowdown

The recovery beats expectations and

allows us to improve our 2016

growth forecast (up to 3.1%)

Available data shows that the pace of

growth remains stable at 0.8% in

3Q16

0.0

0.4

0.8

1.2

Se

p-1

3

Ma

r-1

4

Se

p-1

4

Ma

r-1

5

Se

p-1

5

Ma

r-1

6

Se

p-1

6 (

e)

CI at 60%

CI at 40%

CI at 20%

Current scenario

November 2015 expected scenario



Domestic demand and exports: footholds


Spain: contributions to annualized GDP growth (3Q15-2Q16 average)

Private consumption stands out as

the engine for short term growth

Exports gain traction but their

dynamism is partially offset by imports

growth

Productive investment grows

despite last year’s slowdown

Private consumption

M&E investment

0.5

Net external demand

0.5

Rest of domestic demand

0.2 2.1



Expansionary monetary policy boosts expenditure

18 Source: BBVA Research based on INE & BdE

Spain: new credit flows for consumption purposes (second quarter of each year, % of the disposable income)

• Indirectly: improving expectations

about economic growth and job

creation

• Directly: lower financial burdens

and improvement in funding

conditions

Consumption benefits from

expansionary monetary policy

through several channels

2.0

3.6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2013 2016



Fiscal policy is more expansionary than expected

19

Spain: deterioration (+) / improvement (-) of the public deficit in 2016 due to discretionary measures (GDP pp)

0,1 Tax reductions produced an

estructural fall in revenue, which was

only marginally compensated by the

recovery in tax bases

General government has

implemented a more expansionary

fiscal policy than the one expected a

few months ago

Source: BBVA Researchb based on INE

0.1

0.9

0.0

0.2

0.4

0.6

0.8

1.0

Previous forecast Current forecast



Reforms could be having a stronger impact

20

The behavior of the investment in

M&E positively surprises and

approaches maximum levels

Despite the idle capacity in the industry

persists, there continue to be

investment opportunities

Spain: investment in M&E and production capacity utilisation (%)

79% 78% 82% 73%

(f): forecast

Source: BBVA Research based on INE & MINETUR

5.0

7.4

5.7

7.3

0

2

4

6

8

1995 2007 2012 2016 (f)

Share of M&E in GDP

Industry production capacity utilisation



Tourism remains as a positive element

21

Geopolitical tensions in some of the

competitors steers tourism to Spanish

destinations

The overnight stays of nonresident

tourists have risen by 44 millons

since 2010. Close to 25-30% of them

due to geopolitical tensions


Spain: rise in the overnight stays of nonresident tourists (2010-2015)

Insular and mediterranean regions

are the most favored

Due to

geopolitical

tensions

44 million

11-13 million (25-30%)


A slowdown is coming

Expected growth for 2017 is revised downwards


2015

2017

2016

3.2% 3.1% 2.3%



Lower growth in the US and Brexit are headwinds

Brexit impact on 2017 GDP growth (estimated deviation from baseline scenario in pp)

23

Impact on Spanish GDP -0.4 -0.3%

-0.4%

-0.5%

-0.6%




Oil prices remain low but are revised upwards

24 Source: BBVA Research

Spain: oil price impact on GDP growth Deviation from six months ago baseline scenario in pp) The energy cheapening is largely due

to an increasing supply with a

positive impact on GDP

Nevertheless, prices are revised

upwards and, therefore, their impact is

revised downwards

On average, this factor could

contribute to growth by 0.6pp in the

current biennium 0.0

0.4

0.8

1.2

1.6

2016 2017

February 2016 estimation Current estimation


25


Monetary policy is a tailwind but with decreasing impact

The fall in bank credit interest rates

has favored growth in recent years

Credit risk and the interest rates ZLB

suggest that the most relevant

impact might be behind

Spain: Credit supply contribution to GDP growth (pp)

Source: BBVA Research

0.00

0.25

0.50

0.75

1.00

1.25

2014 2015



A less expansionary fiscal policy

26

Without policy changes, the fiscal

stance would be broadly neutral in

2017

Public administrations’ fiscal

adjustment decomposition (pp of GDP)

Nonetheless, new measures (around

0.5 pp of GDP) will be required in

order to fulfill 2017's deficit target

(3.1% of GDP)

The impact on GDP growth will

depend on the fiscal adjustment

breakdown

(f): forecast. Aids granted to banks are not included

Source: BBVA Research based on MINHAP e INE

5.0

1.5 0.9

4.4

0.7 0.0

3.6

0

1

2

3

4

5

6

Deficit

2015

Passive

fiscal

policy

Discreti

onary

policy

2016

deficit

2017

deficit

2016(p) 2017(p) 2015 2016 (f) 2017 (f)

Passive

fiscal

policy

Discrect

ionary

policy



Uncertainy remains high

27 Source: BBVA Research based on the EPU of Baker et al. (2015)

Spain: Economic policy uncertainty (SM12 of the idiosyncratic component in standard deviations)

Strong uncertainty could be

lowering growth in the 2016-2017

biennium 2016-2017 by 0,7pp

Mitigating uncertainty and reducing

public deficit below 3% of GDP by the

end of the following year are key points

-8

-6

-4

-2

0

2

4

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

General elections


• Españ

Situación

Conclusions


29

The increased vulnerability urges to mitigate uncertainty

about the economic policy to be implemented in upcoming

years

Global economy grows, but modest expansion pace in the

U.S. and Brexit entail a downwards revision for 2017

forecast

In Spain, positive bias is confirmed for 2016, but new

elements in the scenario compel to reduce 2017 growth

foresight


• Españ

Situación

Spain Economic Outlook

3rd QUARTER

2016

situación · 2018-09-14 · spain economic outlook 3q16 2 the increased vulnerability urges to...

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