spain consumption outlook, 2nd semester 2013

Consumption Outlook Second half 2013

Madrid, December 18, 2013

Consumption Outlook December 18th, 2013

Main messages

1

2

3

Rebalancing of global growth but not without risk. Higher contribution to growth by developed economies and lower deterioration in emerging markets

The Spanish economy has begun to grow moderately, underpinned by exports, and a fiscal adjustment that became better distributed over time

Private consumption, especially in the case of durable goods, has shown the

first recovery signs following the improvement of its determining factors

A favorable pattern in consumer finance has allowed an increase in domestic demand

The insufficient adoption of new technologies by companies limits e-commerce growth in Spain

The ageing of the Spanish population might have a positive impact on

household consumption in the coming decades

4

5

6


Section 1

Rebalancing of global growth: economic strengthening in advanced countries and lower deterioration in emerging markets Section 2

Spain: growth returns, although at moderate rates. Commitment to reforms: key for consolidating the improvement in markets and increasing growth potential Section 3

Household consumption: signs of recovery in 2H13, growth in 2014 Section 4

Durable goods: the worst part is over. Improvement in fundamentals, but uneven pattern in demand Section 5

Deconstructing two myths: 1) do we consume less as we get older?, 2) are Spanish products suitable for e-commerce?

Contents


Economic growth (%) Source: BBVA Research and Haver

Global recovery continues, with increasing support from advanced economies

Risks are less extreme, but still tilted to downside

Slowdown in emerging markets, particularly in Asia

2,9

3,6

1,62,3

-0,4

1,1

4,85,2

-4

-2

0

2

4

6

8

20

13

20

14

20

13

20

14

20

13

20

14

20

13

20

14

World USA EMU BBVA-EAGLES

Baseline Baseline Jul-13

Section 1

Rebalancing of global growth


Global: manufacturing PMIs Source: BBVA Research based on Markit Economics data

Improved cyclical outlook in advanced economies …

… while waiting for improvements in GDP growth

Section 1

Rebalancing of global growth: improvement in advanced economies

46

48

50

52

54

56

58

60

Mar

10

Ju

l 1

0

No

v 1

0

Mar

11

Ju

l 1

1

No

v 1

1

Mar

12

Ju

l 1

2

No

v 1

2

Mar

13

Ju

l 1

3

No

v 1

3

Global Advanced economies BBVA Eagles


BBVA Research Financial Tensions Index: developed and emerging economies Source: BBVA Research

Section 1

Rebalancing of global growth: lower deterioration in emerging markets

After the slowdown in growth that followed the announced imminent cut in the pace of asset

purchases by the Fed (tapering), …

…, curbing the capital flight in some emerging markets and improving their outlook

…, financial tensions eased with its subsequent delay …

-0.5

-0.3

-0.1

0.1

0.3

0.5

0.7

0.9

1.1

1.3

-0.12

-0.10

-0.08

-0.06

-0.04

-0.02

0.00

0.02

0.04

0.06

Jan-1

2Feb

-12

Mar-

12

Apr-

12

May-1

2Ju

n-1

2Ju

l-12

Aug

-12

Sep

-12

Oct

-12

No

v-1

2D

ec-

12

Jan-1

3Feb

-13

Mar-

13

Apr-

13

May-1

3Ju

n-1

3Ju

l-13

Aug

-13

Sep

-13

Oct

-13

No

v-1

3D

ec-

13

Emerging economies (LHS)

Developed economies (RHS)


Section 1

Risks are less extreme, but still tilted to the downside

=

Disorderly exit from QE or lack of fiscal

agreement in the US. Higher interest rates and risk aversion

Adjustment in China and other EM

Sharp slowdown as a collateral effect of political

issues in emerging countries

Euro crisis

Lack of decisive progress to strengthen the banking union

and/or risks in ongoing bailout programs


Section 1

Rebalancing of global growth: higher contribution by developed economies and lower deterioration in emerging markets Section 2




Deconstructing two myths: 1) do we consume more as we get older?, 2) are Spanish products adequate for e-commerce?

Contents


Section 2

The Spanish economy bottomed out in 2013

3Q13: domestic demand once again made a positive contribution to growth after 3 years

"in the red"...

Reasons: lower financial tensions, a less contractive fiscal policy and dynamic exports

…, while external demand remained on track

Spain: GDP growth and MICA-BBVA forecasts (q/q%) Source: BBVA Research, based on National Institute of Statistics data

4Q13: information available points to growth of around 0.3%

-1.5

-1.0

-0.5

0.0

0.5

1.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

(f)

CI at 20%

CI at 40%

CI at 60%

Observed (f: MICA BBVA Research forecast)


Section 2

Recovery is following the stylized facts of previous cycles

Export growth

Investment in machinery and equipment

Gross operating surplus

New credit operations (flow)

Employment growth

GDP growth

Growth in the stock of credit

Stable

Stable

Stabilizing

Declining

Variables before the cycle

.

= .

Lagging variables


-5% 0% 5% 10% 15%

Norway

Sweden

Finland

France

Ireland*

United Kingdom

Italy

Denmark

Germany

Belgium

European Union

Euro area

Austria

Switzerland

Netherlands

Portugal

Spain Spanish exports have grown in the last year despite the recession

in the EU

This is partly due to an increase in the share of exports to BBVA-EAGLES countries and other

developed economies...

... but also to gains in Spanish competitiveness in both price and quality

Total exports (cumulative variation 1Q12-3Q13 in %, swda) (*): Data to 2Q13 Source: BBVA Research based on Eurostat

Section 2

Growth in exports: exceptional performance in Eurozone


Section 2

Wage moderation and increased productivity improve companies' positions

The maintenance of savings in the private sector and the reduction of investment...

... improving the position of companies and allowing them to start investing once decreased uncertainty consolidates

... have allowed a deleveraging process against the rest of the world over the last 5

years...

Spain: net foreign borrowing (-) / lending (+) needs (% GDP) Source: BBVA Research, based on National Institute of Statistics data

-15%

-10%

-5%

0%

5%

10%

2007 2013 (f)

Households Financial and nonfinancial companies Public sector Total


Section 2

Greater strength of investment …

Spain: exports and investment in equipment and machinery (2008=100) Source: BBVA Research, based on National Institute of Statistics data

Expected recovery in the Eurozone and dynamic exports ...

In fact, in the first three months of the year it grew 5.3%

... should lead to a recovery of investment in equipment

60

70

80

90

100

110

120

130

140

Dec

99

Jun 0

0D

ec

00

Jun 0

1D

ec

01

Jun 0

2D

ec

02

Jun 0

3D

ec

03

Jun 0

4D

ec

04

Jun 0

5D

ec

05

Jun 0

6D

ec

06

Jun 0

7D

ec

07

Jun 0

8D

ec

08

Jun 0

9D

ec

09

Jun 1

0D

ec

10

Jun 1

1D

ec

11

Jun 1

2D

ec

12

Jun 1

3D

ec

13

Jun 1

4D

ec

14

Exports GFKF: Equipement and Machinary


Section 2

Improvements in credit flows

Spain: new credit operations and repayments to the domestic private sector (Trend) Source: BBVA Research based on Bank of Spain

The Spanish economy has to go through an inevitable deleverage process...

Credit flows are expected to recover starting in the first half of 2014

... which is compatible with the provision of credit for solvent projects

100

150

200

250

300

350

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

€bill

ions

New operations Repayments


General government: public deficit breakdown excluding aid to the financial sector (% GDP) Source: BBVA Research based on Ministry of Finance

Section 2

Fiscal consolidation: lower efforts in the short term

The fiscal effort has been significant in 2012 and 2013...

Deficit targets that are more consistent with recovery will lead to GDP growth in 2014

... and will ensure that public deficit remains at around 6.8% of GDP

9.1

2.6

4.8

6.8

1.6 1.7

6.8

-0.1 1.0

5.8

0

2

4

6

8

10

12

14

Pasi

ve

fisc

al p

olic

y

Fis

cal ef

fort

Defici

t 2

012

Pasi

ve

fisc

al p

olic

y

Fis

cal ef

fort

Defici

t 2

013

Pasi

ve

fisc

al p

olic

y

Fis

cal ef

fort

Defici

t 2

014

Deficit2011

2012 2013 2014


Spain: short-term employment-to-GDP elasticity (q/q %) Reduced VAR in first differences. 72-quarter rolling window Source: BBVA Research, based on National Institute of Statistics data

Job destruction has slowed down, in part as a result of wage moderation

The elasticity of employment to GDP has increased during the crisis. How will it behave

during the recovery?

If labor institutions had been more appropriate at the start of the crisis the destruction of a

million jobs could have been avoided

Section 2

The labor market is stabilizing

-0,2

0,0

0,2

0,4

0,6

0,8

1,0

Dec-

97

Jun-9

8D

ec-

98

Jun-9

9D

ec-

99

Jun-0

0D

ec-

00

Jun-0

1D

ec-

01

Jun-0

2D

ec-

02

Jun-0

3D

ec-

03

Jun-0

4D

ec-

04

Jun-0

5D

ec-

05

Jun-0

6D

ec-

06

Jun-0

7D

ec-

07

Jun-0

8D

ec-

08

Jun-0

9D

ec-

09

Jun-1

0D

ec-

10

Jun-1

1D

ec-

11

Jun-1

2D

ec-

12

Jun-1

3


Spain: residential investment, compared with previous recessions (Maximum during expansion = 100) Source: BBVA Research, based on National Institute of Statistics data

The recovery of investment in the real-estate sector tends to run ahead of the cycle...

The reform process must also ensure an efficient redistribution of resources between

sectors

... however, the current over-supply will make it unlikely that this time it will accompany the

recovery (effect vs cause)

Section 2

The real-estate cycle: "This time is different"

40

50

60

70

80

90

100

110

120

130

140

tt+

1t+

2t+

3t+

4t+

5t+

6t+

7t+

8t+

9t+

10

t+11

t+12

t+13

t+14

t+15

t+16

t+17

t+18

t+19

t+20

t+21

t+22

t+23

t+24

t+25

t+26

t+27

t+28

t+29

t+30

t+31

t+32

Quarters

Mar-80 Sep-90 Dec-06


Section 2

2014: the start of recovery

Spain: GDP growth by autonomous region (% y/y) Source: BBVA Research

Spain has bottomed out in 2013 with a GDP fall of 1.3% and will begin to grow in 2014 by

0.9%

… and the exposure to external demand

Regional variations are due to the heterogenous fiscal efforts in 2012, the uneven

target deficits for 2013 …

AND

ARAAST

B. IS.

C. IS.

CNT

CYL

CLM

CAT

EXT

GAL

MAD

MUR

NAV

BASQ

RIO

VAL

SPA

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

-2.0 -1.8 -1.6 -1.4 -1.2 -1.0 -0.8 -0.6 -0.4 -0.2 0.0

Gro

wth

in 2

01

4

Growth in 2013


Section 2

The need of continuing the reform processes

Relatively negative scenarios such as those of the IMF would imply more than one lost

decade

The objective would be to implement the reforms needed in order to increase the

economy's growth potential

In their absence, the unemployment rate will remain high and recovery will be slow

Spain: GDP growth in different scenarios (2008=100) Source: BBVA Research, based on National Institute of Statistics and IMF

80

85

90

95

100

105

110

20

08

20

09

20

10

20

11

20

12

20

13

(f)

20

14

(f)

20

15

(f)

20

16

(f)

20

17

(f)

20

18

(f)

Growth forecast 1.5% yoy

Growth forecast 2.5% yoy

IMF's growth forecast


Section 1

Rebalancing of global growth: higher contribution by developed economies and lower deterioration in emerging markets Section 2





Contents


Spain: private consumption growth (%) Source: BBVA Research based on the National Institute of Statistics

Section 3

Household consumption: signs of recovery in 2H13, growth in 2014

Disposable income: • Change of cycle in the labor market

Wealth: • Increase in financial wealth

Likelihood to consume: • Lower uncertainty

Factors that determine consumption:

Debt: • Deleveraging of the private sector • Deleveraging of the public sector

-6

-5

-4

-3

-2

-1

0

1

2

3

Mar

08

Jun 0

8Sep 0

8D

ec

08

Mar

09

Jun 0

9Sep 0

9D

ec

09

Mar

10

Jun 1

0Sep 1

0D

ec

10

Mar

11

Jun 1

1Sep 1

1D

ec

11

Mar

12

Jun 1

2Sep 1

2D

ec

12

Mar

13

Jun 1

3Sep 1

3D

ec

13

Mar

14

Jun 1

4Sep 1

4D

ec

14

% y/y Average


Spain: change in employment and unemployment rate (%) Source: BBVA Research based on the National Institute of Statistics

Section 3


The labor market reform has helped to rebalance the adjustment between quantities

(employment) and prices (wages) …

…, which has helped to avoid a larger decline in the number of employed people over the last

year

Sustained employment recovery will come in 2H14…, but increases in employment can also

happen in 1H14

1. Change of cycle in the labor market

0

6

12

18

24

30

-7.5

-6.0

-4.5

-3.0

-1.5

0.0

2008 2009 2010 2011 2012 2013 2014

Employment (% lhs.) Unemployment rate (% rhs.)


Section 3


The easing of financial tensions has helped stock prices and has reduce financing costs → ∆

of net financial wealth

BBVA Research estimates:

Quarterly ∆ in real net financial wealth of 1% → Cumulative 0.2% ∆ of private consumption over the next 4 quarters

2. Increase in financial wealth Spain: real net financial wealth (Deflated by the consumption deflator, swda figures, %) Source: BBVA Research based on BoS and National Institute of Statistics

Real net financial wealth: ∆17.4% since 2Q12 → +3.2 pp of consumption growth until 2Q14

-30

-25

-20

-15

-10

-5

0

5

10

15

20

Mar

-08

Jun-0

8

Sep-0

8

Dec-

08

Mar

-09

Jun-0

9

Sep-0

9

Dec-

09

Mar

-10

Jun-1

0

Sep-1

0

Dec-

10

Mar

-11

Jun-1

1

Sep-1

1

Dec-

11

Mar

-12

Jun-1

2

Sep-1

2

Dec-

12

Mar

-13

Jun-1

3

% yoy %qoq

2Q12-2Q13: +17,4%


Section 3


BBVA Business Trends Survey: expectations of the economic situation (Net responses. A value <0 indicates a worsening) Source: BBVA Research

The perception about the economic situation has improved over the last six months ...

… more than it was expected six months ago

1H14: positive outlook

3. Less uncertainty, both in macroeconomic terms…

-100

-80

-60

-40

-20

0

20

40

60

1H11 2H11 1H12 2H12 1H13 2H13 1H14 (f)

Expectations Situation with respect to last semester


Section 3


Spain: impact of a 5-point confidence increase* on the level of consumption (%) (*) Perception of the household regarding its future economic situation Source: BBVA Research, based on National Institute of Statistics and European Commission

Lower uncertainty encourages consumption at the expense of saving

Household´s saving rates will remain at historically low levels

3. …, and in microeconomic terms

0,0

0,00,0

0,3

0,2

0,1

-0,05

0,00

0,05

0,10

0,15

0,20

0,25

0,30

1st year 2nd year 3rd year

+5 points permanent +5 points temporary


Section 3


Spain: new consumer financing operations (% y/y of third-order moving average) Source: BBVA Research based on Bank of Spain

New consumer credit operations have grown between January and October due to the increase in mid and long term financing …

…, within a context of deleveraging and high interest rates

Leverage ratio (over GDP): in line with European economies (6.1%)

4. Household deleveraging (I)

-80

-60

-40

-20

0

20

40

60

Jan-1

1Feb

-11

Mar-

11

Apr-

11

May-1

1Ju

n-1

1Ju

l-11

Aug

-11

Sep

-11

Oct

-11

No

v-1

1D

ec-

11

Jan-1

2Feb

-12

Mar-

12

Apr-

12

May-1

2Ju

n-1

2Ju

l-12

Aug

-12

Sep

-12

Oct

-12

No

v-1

2D

ec-

12

Jan-1

3Feb

-13

Mar-

13

Apr-

13

May-1

3Ju

n-1

3Ju

l-13

Aug

-13

Sep

-13

Oct

-13

Total < 1 year 1-5 years > 5 years


Section 3


4. Household deleveraging (II) BBVA Business Trends Survey: expectations of supply and demand for consumer credit (Net responses. A value of <0 indicates a worsening) Source: BBVA Research

Recovery in consumer finance was already noted in the 1H13 Business Trends Survey

The 2H13 Business Trends Survey suggests that it has evolved better than expected …

…, and it will continue to do so, at least during the first half of 2014

-90

-75

-60

-45

-30

-15

0

15

30

45

2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14(f)

Supply Supply expectations

Demand Demand Expectations


Section 3


The increase in VAT alters the inter-temporal pattern of household consumption …

…, and has permanent effects on its level of expense

5. Consequences of public sector deleveraging

Spain: response to a 2-pp increase in VAT (Deviation from trend, %) Source: BBVA Research. Simulations with REMS

Nevertheless, the transfer of the increase in VAT to prices was limited (of around 1 point)

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Quarters

GDP Consumption

VAT hike in T0


Section 1

Rebalancing of global growth: higher contribution by developed economies and less deterioration in emerging markets Section 2





Contents


Section 4

Demand for durable goods: the worst part is over

Spain: availability of consumer goods (swda data, 1Q08 = 100)) Source: BBVA Research, based on Ministry of the Economy

Consumption of durable goods may have bottomed out …

…, after the collapse in 4Q12 and 1Q13 …

…, triggered by the consequences of the VAT hike and the elimination of the public employee

bonus

0

20

40

60

80

100

Mar

-08

Jun-0

8

Sep-0

8

Dec-

08

Mar

-09

Jun-0

9

Sep-0

9

Dec-

09

Mar

-10

Jun-1

0

Sep-1

0

Dec-

10

Mar

-11

Jun-1

1

Sep-1

1

Dec-

11

Mar

-12

Jun-1

2

Sep-1

2

Dec-

12

Mar

-13

Jun-1

3

Sep-1

3

Consumer goods Food products

Durables Other non-durables

VAT hike VAT hike


Section 4


…, accompanied by the business channel in 2H13

Spain: private car registrations per channel (swda data, 3MA, Jan-09 = 100) Source: BBVA Research based on ANFAC and Ganvam data

The PIVE has limited the negative impact of the VAT hike (less than 680,000 registrations in

2013 without it) …

Vehicles: sales pattern shaped by the PIVE (Efficient Vehicle Incentives

Program)

The private channel is responsible for the increase in registrations in 2013 …

…, but it has not prevented the continued ageing of the vehicle fleet (52.3% of private

cars are 10 years old or older) and the increase in the UC/NC ratio (2.2)

0

25

50

75

100

125

150

175

200

Jan-0

9

Apr-

09

Aug

-09

Dec-

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Apr-

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-10

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Aug

-11

Dec-

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Apr-

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Aug

-12

Dec-

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Apr-

13

Aug

-13

Dec-

13

(f)

Total Private Company cars Renting

Plan 2000E End of 2000E Plan + ∆VAT

∆VAT + PIVE


Section 4


Growth in car registration dependent on the PIVE being maintained

Spain: car registrations Source: BBVA Research

2013: around 720,000 units

2014: shaped by whether the bonus will be maintained or eliminated (∆7.5% if the PIVE is

extended)

The improvement in its determining factors (pcGDP, unemployment and oil relative prices) could offset the impact of the elimination of the

PIVE

-30

-20

-10

0

10

0

300

600

900

1200

2008 2009 2010 2011 2012 2013 2014 L/T

% y

oy

Tho

usa

nds

of

cars

Actual Forecast

actual % yoy (RHS) forecasted %yoy (RHS)


Motorcycles: seven years later, light at the end of the tunnel

Spain: motorcycle registrations (swda data, 1Q08 = 100) Source: BBVA Research, based on DGT and Anesdor

The market could have bottomed out in 1H13

However, there will be fewer than 97 thousand motorcycles registered at the end of 2013

(-4.7%)

In 2014, 105,000 units could be reached if the fundamentals improve as expected

Section 4


0

20

40

60

80

100

120

140

mar

-08

jun-0

8

sep

-08

dic

-08

mar

-09

jun-0

9

sep

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dic

-09

mar

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jun-1

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sep

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dic

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jun-1

1

sep

-11

dic

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mar

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jun-1

2

sep

-12

dic

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mar

-13

jun-1

3

sep

-13

Dec-

13

(f)

Registrations Motorcycle fleet

Moto-E Plan


Furniture: awaiting housing demand Spain: business figures for furniture and housing investment (swda data, 1Q08 = 100)) Source: BBVA Research, based on National Institute of Statistics data

Stable sales, prices relatively low (-0.9% since Jun-13)

BBVA Research estimates: 1% ∇ q/q in nominal housing investment →

0.6% ∇ cumulative sales

The expected recovery in housing demand during 2H14 will help to encourage furniture

consumption

Section 4


20

30

40

50

60

70

80

90

100

Mar-

08

Jun-0

8Sep

-08

Dec-

08

Mar-

09

Jun-0

9Sep

-09

Dec-

09

Mar-

10

Jun-1

0Sep

-10

Dec-

10

Mar-

11

Jun-1

1Sep

-11

Dec-

11

Mar-

12

Jun-1

2Sep

-12

Dec-

12

Mar-

13

Jun-1

3Sep

-13

Dec-

13

Mar-

14

Jun-1

4Sep

-14

Dec-

14

Furniture(sales volume, trend) Nominal Housing Investment

Real Housing Investment


White line: positive signs…, when the 2nd derivative is analyzed

Spain: sales of electrical appliances by household (% y/y of number of units) Source: BBVA Research, based on ANFEL data

Sales Jan-Oct 2013: -7.4% y/y (-13.9% in 2012)

Sales were lower in all electrical appliance categories, but all to a lesser degree than in

2012 (except fridges and freezers)

Section 4


Relative price fall: -1.6% between June and October

-40

-30

-20

-10

0Fridges

Freezers

Washing Machines

Driers

Dish WashersCookers

Ovens

Counter Tops

Total

2012 Jan-Oct 2012 Jan-Oct 2013


Brown lines: falling penetration rates Spain: real retail sales of brown goods (swda data, Jan-11 = 100) Source: BBVA Research based on Eurostat

Sluggish demand: digesting the purchases that were brought forward before the VAT increase

The across-the-board fall in prices has not prompted increased penetration of Spanish

homes in 2013 ...

Section 4


…, except for mobile devices: tablets (16.3%) and mobile telephones (96.1%)

60

65

70

75

80

85

90

95

100

105

Jan-1

1

Apr-

11

Jul-1

1

Oct

-11

Jan-1

2

Apr-

12

Jul-1

2

Oct

-12

Jan-1

3

Apr-

13

Jul-1

3

Oct

-13

Consumer Electronics ICT Retail trade (exc food)

∆VAT


Section 1

Rebalancing of global growth: higher contribution by developed economies and less deterioration in emerging markets Section 2




Dismantling two myths: 1) do we consume more as we get older?, 2) are Spanish products adequate for e-commerce?

Contents


Spain: average consumption per household by main breadwinner's age. 2007 and 2012 Source: BBVA Research based on National Institute of Statistics (Household budget survey)

The Spanish population has aged over the last four decades and will continue to do so in the

coming decades

Dependency ratio: 16.5% in 1973; 26.7% in 2013; 72.4% (f) in 2050

What consequences this ageing have on consumption spending in Spanish homes?

Section 5

Dismantling two myths: 1) do we consume more as we get older? No

The cross section data seems to suggest that the consumption by age has an inverted U

shape …

Box 1

9.5

9.7

9.9

10.1

10.3

10.5

10.7

24

-26

27

-29

30

-32

33

-35

36

-38

39

-41

42

-44

45

-47

48

-50

51

-53

54

-56

57

-59

60

-62

63

-65

66

-68

69

-71

72

-74

75

-77

78

-80

LN

(Ho

use

ho

ld c

onsu

mptio

n i

n

20

11

€)

Age of the household´s main breadwinner

2007 2012


Spain: relative consumption per household by age and cohort Source: BBVA Research based on National Institute of Statistics (ECPF-EPF)

…, however, this result is not caused by ageing, but by the permanent income (cohort), the size

and composition of the household

BBVA Reseach estimates that consumption is an increasing and concave function of age

Section 5

Dismantling two myths: 1) do we consume more as we get older? No

‘At each age, we consume more than our parents and less than our children will do’ →

ageing might have positive effects on household spending

Box 1

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

272931333537394143454749515355575961636567697173757779

Consu

mption p

er

house

hold

(2

01

1€

)26 y

ears

= 1

Age of the main breadwinner

Age effect

0.0

0.2

0.4

0.6

0.8

1.0

1968-1

970

1965-6

7

1962-6

4

1959-6

1

1956-5

8

1953-5

5

195

0-5

2

1947-4

9

1944-4

6

1941-4

3

1938-4

0

1935-3

7

1932-3

4

1929-3

1

1926-2

8

1923-2

5

1920-1

922

Consu

mption p

er

house

hold

(2

01

1€

)Bir

th y

ear

1971

-1973 =

1

Birth cohort

Cohort effect


Spain vs Europe: a breakdown of the digital gap (Scale from 1 (minimum) to 7 (maximum), 2013) Source: BBVA Research based on WEF

The use of new technologies is substantially lower in Spain than in other advanced

economies …

… particularly amongst companies ...

Section 5

Dismantling two myths: are Spanish products adequate for e-commerce? Yes

…, which limits the expansion in e-commerce

Box 1

1

2

3

4

5

6

7

Aff

ord

ab

ility

Busi

ness

usa

ge

Eco

no

mic

im

pact

Political and

regu

lato

ryen

vir

on

men

t

Ind

ivid

ual

usa

ge

Infr

ast

ructu

re a

nd

dig

ital

con

ten

t

Govern

ment

usa

ge

So

cial Im

pact

Skill

s

Inn

ovati

on

env

iron

men

t

Spain Germany Sweden


Companies selling online, 2012-13 (Percentage of companies with at least 10 employees where online sales are at least1% of their total sales) Source: BBVA Research based on Eurostat

In addition to the lack of resources, there are idiosyncratic factors that hamper e-commerce in

Spain

In particular, the belief that the product is not adequate to be sold electronically

Section 5

Dismantling two myths: are Spanish products adequate for e-commerce? Yes

However, the % of companies that sale online in Spain is lower than in leading countries,

regardless of the size or sector of activity (lack of innovation and deficit of human capital)

Box 2

0

10

20

30

40

50

Tota

l

1-9

10

-49

50

-24

9

25

0 o

r m

ore

Manu

factu

ring

En

erg

y

Co

nst

ructio

n

Reta

il

Tra

nsp

ort

atio

n

ICT

Real Sta

te

Pro

fess

ion

al a

ctiv

itie

s

Adm

inis

trativ

e s

erv

ices

Business size Business sector

Spain Germany


In short ...

More balanced composition of global growth. Risks are less extreme, but still tilted to downside

The Spanish economy has begun to grow following the stylized facts from previous cycles

Private consumption is rising steadily, underpinned by the improvement in its determining factors and by improved financing …

…, but no euphoria: fundamentals are still weak, households are still indebted

Durable goods: the worst part is over

E-commerce: a question of business survival

In the long term, the demographic transition could favor consumption

1

2

3

4

5

6

7

Consumption Outlook Second half 2013

Madrid, December 18, 2013


Spain and Europe: macroeconomic forecasts Source: BBVA Research based on official bodies

Annex Section 2

Scenario 2013-2014: start of recovery

Spain EMU Spain EMU Spain EMU Spain EMU Spain EMU

Households final consumption expenditure 0.1 1.0 -1.2 0.3 -2.8 -1.4 -2.6 -0.5 0.1 0.7

General government final consumption exp. 1.5 0.6 -0.5 -0.1 -4.8 -0.5 -1.7 0.2 -1.6 0.4

Gross fixed capital formation (G.F.C.F.) -5.5 -0.6 -5.4 1.7 -7.0 -3.8 -6.4 -3.6 0.7 2.2

Equipment and cultivated assets 4.3 5.6 5.3 4.7 -3.9 -4.2 1.0 -3.8 6.5 3.4

Equipment and machinery 5.0 5.7 5.5 4.7 -3.9 -4.2 1.1 -3.8 6.5 3.4

Housing -11.4 -3.0 -12.5 -0.3 -8.7 -3.4 -9.0 -3.0 -0.7 2.0

Other constructions -8.4 -6.1 -9.2 -0.2 -10.6 -4.9 -12.6 -5.7 -5.3 -0.9

Changes in inventories (*) 0.3 0.6 -0.1 0.2 0.0 -0.5 0.0 0.0 0.0 0.0

Domestic Demand (*) -0.6 1.2 -2.1 0.7 -4.1 -2.2 -3.1 -1.0 -0.1 0.8

Exports 11.7 11.4 7.6 6.7 2.1 2.7 4.6 1.7 6.3 3.9

Imports 9.3 9.8 -0.1 4.6 -5.7 -0.8 -1.0 0.4 3.4 3.7

External Demand (*) 0.4 0.7 2.1 0.9 2.5 1.5 1.8 0.6 1.1 0.3

GDP mp -0.2 1.9 0.1 1.6 -1.6 -0.6 -1.3 -0.4 0.9 1.1

Pro-memoria

GDP excluding housing 0.8 2.2 1.0 1.7 -1.2 -0.5 -0.9 -0.2 1.0 1.0

GDP excluding contruction 1.8 2.7 2.0 1.8 -0.4 -0.2 0.0 0.1 1.4 1.1

Total employment (LFS) -2.3 -0.5 -1.9 0.3 -4.5 -0.7 -3.1 -0.9 0.0 0.1

Unemployment rate (% Active pop.) 20.1 10.1 21.6 10.2 25.0 11.4 26.3 12.0 25.6 12.0

Current account balance (% GDP) -4.5 0.0 -3.8 0.1 -1.1 1.2 1.2 2.1 1.8 2.1

Public debt (% GDP) (**) 61.7 85.4 70.4 87.3 85.9 90.6 94.4 94.5 98.4 94.8

Public deficit (% GDP) -9.6 -6.2 -9.1 -4.1 -6.8 -3.7 -6.8 -2.8 -5.8 -2.4

CPI (average) 1.8 1.6 3.2 2.7 2.4 2.5 1.5 1.5 1.1 1.4

CPI (end of period) 3.0 2.0 2.4 2.9 2.9 2.3 0.6 1.3 1.3 1.4

2013 (f) 2014 (f)20112010 2012(% YoY)

(*) Contribution to GDP Growth (**) Excluding aid to the banking sector in Spain

(f): forecast

spain consumption outlook, 2nd semester 2013

Economy & Finance