perspectives on global and spanish economy q1-2019 · 2019-01-22 · perspectives on global and...

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


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


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


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


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


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


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


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


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*


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


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)


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)


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)


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


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)


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


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


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


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


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


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

www.circulodeempresarios.org

‘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.

perspectives on global and spanish economy q1-2019 · 2019-01-22 · perspectives on global and...

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