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Second Quarter 2015

Europe Outlook

Europe Outlook, Second Quarter 2015

Main messages

1

2

Softened global recovery with heightened differentiation and policy activism

Eurozone recovery gain momentum due to stronger than expected impact from

QE and from lower oil prices, with broadly neutral fiscal policy

All large countries exit the recession, with stronger growth in Germany and

Spain

Inflation expectations in the eurozone remain low but broadly stable

Risks balance is now more neutral, but remains biased to the downside:

unresolved Greek and Russia/Ukraine crisis; less benign external environment

3

4

5


Section 1

The global juncture: increasing financial tensions in DM and differentiation across EM

Section 2

Eurozone drivers: oil and ECB measures offset the downside risks

Section 3

Forecasts: more solid growth expected for 2015

Section 4

The challenges continue: low potential, large imbalances

Annex

Country breakdown

Index


Inflation (%, YoY) Source: BBVA Research based on Haver Analytics

World GDP growth forecasts based on BBVA-GAIN (%, QoQ) Source: BBVA Research

The global recovery loses ground at the beginning of 2015, mainly in EMs and the US, while inflation remains low

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2

Jan-1

3

Jan-1

4

Jan-1

5

Developed Emerging World, core inflation

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

3Q

14

1Q

15

20% CI 40% CI 60% CI Point estimates

(3.1%

annualised)


EMs • Response to the

Fed’s rate hikes

• Less room for

manoeuvre

Source: BBVA Research

Asia • Activity slowdown

• Room for both fiscal

and monetary policy

Europe • Recovery gains

momentum…

• … supported by oil

prices and QE

• Inflation expectations

low but broadly stable

• Neutral fiscal policy

LatAm • Less benign global

environment

(China, commodity

prices, Fed)

• Tighter policies and

adverse politics

Main features of the World economy

USA • Strong domestic

consumption...

• …but slow global

demand and USD

appreciation

• Prolonged period of

low inflation

• Fed’s hike in

September


EAGLES:

China India Indonesia Russia Brazil Turkey Mexico

USA

Mexico

Brazil

Spain

Eurozone

EAGLES China

Emerging Asia LatAm 7 LatAm 7:

Argentina Brazil Chile Colombia Mexico Peru Venezuela

2015

2.9 1.6 4.9 7.0

6.8 0.6

2.5

-0.7

3.0

Source: BBVA Research

Global

3.5

Emerging

Asia:

China Hong Kong India Indonesia S. Korea Malaysia Philippines Singapore Taiwan Thailand Vietnam

World growth: subdued with heightened differentiation

2016

2.8 2.2

2.7

5.3 6.6

6.7

1.8

2.7

2.1

3.9


Section 1


Section 2


Section 3


Section 4


Annex

Country breakdown

Index


Drivers of growth

Greek crisis weighing on confidence

Uncertainty about Junker’s plan

China: downside bias

Slowdown in Russia

Slow implementation of reforms: moral hazard issues

Relaxation in fiscal policy, now broadly neutral

Oil price shock is positive as it is mostly supply-driven

Monetary policy: large and open-ended QE programme

Better-than-expected incoming data


ECB’s expected balance sheet: breakdown by components (EUR bn) Source: Bloomberg and BBVA Research

The ECB announced a larger-than-expected QE…

237

212

352 432 512 512

30100

160220 2500 176

440

704 836

0

24

60

96114

1000

1500

2000

2500

3000

3500

Dec-14 jun-15 Dec-15 jun-16 Dec-16

European institutions

Sovereign bonds

CBPP3 & ABSPP

CBPP1&2

SMP

MRO and 3M LTRO

TLTRO

3Y LTRO

Other balance sheet items

Purchase

programs

Tender

operations

Open ended: Monthly purchases €60bn to expand the ECB balance sheet by about

€1.1 trillion (CBPP and ABSPP)

Purchases of private assets: CBPP and ABSPP, currently running at

about €13 billion a month (250 EUR bn).

Purchases of European institutions’ bonds: 12% (114 bn EUR).

Risk-sharing.

Purchases of government bonds: around EUR 836 bn EUR.

Risk-sharing 8% (EUR 67 bn)


… that will strengthen the recovery

Impact from

purchase of 1% of

GDP

US GDP: 0.1/ 0.6pp

UK GDP: 0.1/ 0.2pp

Low growth Baseline

Dif. GDP

level 4Q

(pp)

2015 1.2 (0.4QoQ)

1.6 (0.5QoQ)

0.6

2016 1.6 (0.4QoQ)

2.2 (0.6QoQ)

1.2

Porfolio rebalancing channel.

Weaker euro

Signaling channel (QE + FWG).

Still limited impact on relevant interest rates

Reduced uncertainty about financial markets and the economy

QE channels Impact? Likely lower than US and UK (Bank-based financial system / Later

implementation)

Source: ECB , Weale et all. March 2015, and BBVA Research


Exchange rate (EURUSD) Source: BBVA Research

0.5/0.6% GDP in eurozone

first year

10%

USD/EUR EUR against USD

A larger than expected weaker euro

Nov-14

Jan-15May-15

0,8

0,9

1,0

1,1

1,2

1,3

1,4

1,5

Ju

n-1

2

Oct-

12

Fe

b-1

3

Ju

n-1

3

Oct-

13

Fe

b-1

4

Ju

n-1

4

Oct-

14

Fe

b-1

5

Ju

n-1

5

Oct-

15

Fe

b-1

6

Ju

n-1

6

Oct-

16

Fe

b-1

7

Ju

n-1

7

Oct-

17


Oct-14

May-15

50

60

70

80

90

100

110

120

130

Ma

r-1

0

Sep

-10

Ma

r-1

1

Sep

-11

Ma

r-1

2

Sep

-12

Ma

r-1

3

Sep

-13

Ma

r-1

4

Sep

-14

Ma

r-1

5

Sep

-15

Ma

r-1

6

Sep

-16

Ma

r-1

7

Sep

-17

Ma

r-1

8

Sep

-18

0.2-0.5%

Lower oil prices will boost GDP growth in 2015 and 2016…

Oil price (Brent, USD/b) Source: BBVA Research

More than 30%

in 2015-16

The fall in oil prices is positive for growth, and joins to improved confidence

… supporting household spending, also underpinned by employment


Fiscal policy more favourable than in previous years

Structural deficit adjustment 2010-2015 (% GDP) Source: BBVA Research and IMF

Broadly neutral fiscal policy in 2015

European Commission more careful not to force pro-cyclical adjustments

Uncertainty about Juncker’s Plan: Impact of up to 0.5% per year in 2015-17 if

successful

-1

1

3

5

7

9

11

Eurozone Germany France Italy Spain Portugal Ireland

Struct.Def. at the end of 2015 2015 2014 2013 2012 2011

Structural adjustment


Softened global recovery, mainly in EMs and the slowdown in China

GDP growth in China and Latam (% YoY) Source: BBVA Research

Direct effect of a negative shock of 4% of GDP in Russia on the GDP of member states (pp) Note. INSEE estimates the impact of a negative shock of GDP in the Central and Eastern European Countries http://www.insee.fr/en/indicateurs/analys_conj/archives/dec-2014-D1E.pdf Source: INSEE and BBVA Research

-0.40

-0.35

-0.30

-0.25

-0.20

-0.15

-0.10

-0.05

0.00

INSEE BBVA Research

Germany France Spain Italy Average

Russia: most of the impact through trade channel

Downward bias in China and downside revision in Latam

0

1

2

3

4

5

6

7

8

2015 2016 2015 2016

China Latam

Jan-14 May-15

http://www.insee.fr/en/indicateurs/analys_conj/archives/dec-2014-D1E.pdf







Section 1


Section 2


Section 3


Section 4


Annex

Country breakdown

Index


The recovery is evolving better than expected, with more growth in Germany and Spain than France or Italy

MICA-BBVA GDP short term model (% QoQ) Sources: Haver and BBVA Research

GDP growth (QoQ)

2Q14 3Q14 4Q14 1Q15 (f)

Eurozone 0.1% 0.2% 0.3% 0.5%

Germany -0.1% 0.1% 0.7% 0.6/0.7%

France -0.1% 0.3% 0.1% 0.3%

Italy -0.2% -0.1% 0.0% 0.2/0.3%

Spain 0.5% 0.5% 0.7% 0.9%

-0,6

-0,4

-0,2

0,0

0,2

0,4

0,6

0,8

1,0

1,2

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

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

CI 20% CI 40% CI 60% Observed

Source: Eurostat and BBVA Research


Strong private consumption in 2015

Eurozone: private consumption and real labour income (% YoY) Source: Eurostat and BBVA Research

-2

-1

0

1

2

3

4

1Q

00

4Q

00

3Q

01

2Q

02

1Q

03

4Q

03

3Q

04

2Q

05

1Q

06

4Q

06

3Q

07

2Q

08

1Q

09

4Q

09

3Q

10

2Q

11

1Q

12

4Q

12

3Q

13

2Q

14

1Q

15

4Q

15

3Q

16

HH disposable income Private consumption

Real labour income increased by 1.7pp (1.6%) in 2014 driven by employment

(1.4pp) and low inflation (0.6pp), despite low wages (-0.3pp)

Confidence recovery is finally supporting domestic demand, especially consumption


-10

-8

-6

-4

-2

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016

Domestic Demand Exports Imports Net exports GDP

Forecast: growth will be higher than 1.5% in 2015

EMU: annual GDP growth contributions (pp) Sources: Eurostat and BBVA Research

2013 2014

2015

(f)

2016

(f)

Activity

REAL GDP (% YoY) -0.4 0.9 1.6 2.2

Private consumption -0.6 1.0 1.7 1.6

Public consumption 0.2 0.7 0.5 0.9

Investment -2.4 1.0 1.5 4.4

Domestic demand (contr. %) -0.9 0.8 1.3 2.0

Exports 2.1 3.7 5.2 5.9

Imports 1.2 3.8 4.9 6.1

Net exports (contr. %) 0.4 0.1 0.3 0.2

Current account balance(% GDP) 2.2 2.3 2.8 2.8

Public deficit (% GDP) -2.9 -2.5 -2.1 -1.6

CPI, % average 1.4 0.4 0.1 1.3



GDP forecast by country (%) Sources: Eurostat and BBVA Research

Across countries, Germany will continue to lead France and Italy

• Germany: strong growth will continue to be driven by domestic demand

• France: the pace of recovery depends on continued structural reforms and reinforcing competitiveness

• Italy: finally out of recession in 2015, though the recovery is slow and mainly exports driven

-0,4

0,9

1,6

2,2

0,2

1,61,9

2,2

0,4 0,4

1,1

1,8

-1,7

-0,4

0,7

1,3

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

20

13

20

14

20

15

20

16

20

13

20

14

20

15

20

16

20

13

20

14

20

15

20

16

20

13

20

14

20

15

20

16

EMU Germany France Italy

New projection (Apr-15) Last projection (Jan-15)


Inflation very low in 2015, below the ECB target in the forecast horizon

Eurozone: demand and inflation Source: Eurostat and BBVA Research

Very low inflation due to slow recovery of domestic demand

Negative inflation due to energy prices that will continue to shape inflation in 2015… …but the through should be behind us

Lower risk of deflation -4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

3Q

14

1Q

15

3Q

15

1Q

16

3Q

16

1Q

17

3Q

17

Domestic demand (cycle, pp, LHS)

Core (% YoY, RHS)

Headline (% YoY, RHS)

Recess

ion

Recess

ion


Europe faces important challenges and risks

Russian crisis worsening

(with significant financial spillovers)

Greece: uncertainty weighs on investment

Risk of stagnation and

deflation

Slow implementation

of reforms. Additional

downside risks after QE: moral

hazard

Several elections in 2015-16, risk

of unstable governments


Greece in the spotlight

Slow progress in negotiations and strong liquidity strains

Some progress on VAT, privatization, housing tax

Important differences on pension and

labour maket reform

The impact of a risk scenario (default and/or Grexit) on the rest of Europe would

be manegeable

Greece: Forthcoming repayments of sovereign debt (EUR bn) Source: BBVA Research,

3,6

4,7

1,7

1

August

July

June

May


Section 1


Section 2


Section 3

Forecast: more solid growth expected for 2015

Section 4


Annex

Country breakdown

Index


Low potential growth in the EZ vs the US

US and EZ projected potential GDP growth (pp) Sources: Eurostat and BBVA Research

Lower potential well below that in the US

Slower population dynamics and productivity growth are the main reasons of

the gap

-0,2

0,3

0,8

1,3

1,8

2,3

2,8

2014-2022 2014-2022

Capital growth Higher participation rate

Population 15-65 growth Fall of structural unemployment

Productivity growth

EMU

US


Where do we stand after the crisis?

GDP (Q1-2008=100)

Sources: Eurostat, Haver and BBVA Research

98,1

103,9

101,4

90,5

94,2

109,6

93,1

96,3

87,5

90,0

92,5

95,0

97,5

100,0

102,5

105,0

107,5

110,0

Ma

r-0

8

Ju

n-0

8

Se

p-0

8

De

c-0

8

Ma

r-0

9

Ju

n-0

9

Se

p-0

9

De

c-0

9

Ma

r-1

0

Ju

n-1

0

Se

p-1

0

De

c-1

0

Ma

r-1

1

Ju

n-1

1

Se

p-1

1

De

c-1

1

Ma

r-1

2

Ju

n-1

2

Se

p-1

2

De

c-1

2

Ma

r-1

3

Ju

n-1

3

Se

p-1

3

De

c-1

3

Ma

r-1

4

Ju

n-1

4

Se

p-1

4

De

c-1

4

Eurozone Germany France Italy

Spain USA Portugal Ireland


Heat map of macroeconomic imbalances

Excluding aid to the financial sector Source: Eurostat, BCE, Haver and BBVA Research

Public Debt Public Deficit*

Unemploy-

ment rate

Current

Account

Net

International

Investment

Position

Real effective

exchange rate

Nominal Unit

Labour Cost Household Debt

Non-Financial

Corporations

Debt

% of GDP % of GDP %AP % of GDP % of GDP 3-yr % chg. 3-yr % chg. % of GDP % of GDP

Q4-2014 2014 Latest 2014 2014 Q4-2014 Latest Latest Latest

GER 74,7 0,7 4,8 7,6 36,4 -0,3 1,7 55,1 49,4

FRA 95,2 -4,0 10,6 -1,0 -16,4 -1,2 1,2 54,8 96,4

AUT 84,5 -2,4 5,3 0,8 2,1 1,9 2,5 50,9 77,9

BEL 106,5 -3,2 8,5 1,8 54,7 -0,5 0,1 56,5 135,1

NED 68,8 -2,3 7,1 10,3 65,8 0,8 1,9 117,1 113,8

ITA 132,1 -3,0 12,7 1,9 -27,7 0,2 1,6 42,8 69,1

SPA 97,7 -5,8 23,2 0,8 -93,5 -1,0 -0,2 74,6 109,9

POR 130,2 -4,5 14,1 0,6 -111,6 -1,8 -6,4 79,7 106,1

GRC 177,1 -3,5 25,7 0,9 -121,9 -5,6 0,8 64,4 69,7

CYP 107,5 -8,8 16,3 -5,1 -165,1 -1,4 -2,1 123,1 220,9

SLV 80,9 -4,9 9,4 5,8 -44,7 1,2 -4,2 29,6 81,0

SLK 53,6 -2,9 12,3 0,1 -70,0 1,3 2,2 29,2 44,2

DEN 45,2 1,2 6,2 6,2 41,8 -1,2 1,3 133,0 88,4

SWE 43,9 -1,9 7,9 7,8 -4,0 -3,7 0,4 83,4 145,4

Colour criterion:

Higher than 130 Lower than -6 Higher than 16 Lower than -6 Lower than -100 Greater than 6 Greater than 9 Greater than 110 Greater than 140

110/130 -6/-5 13/16 -6/-4 -100/-50 4/6 6/9 90/110 120/140

90/110 -5/-4 10/13 -4/-2 -50/0 2/4 3/6 75/90 100/120

60/90 -4/-3 7/10 -2/0 0/20 0/2 0/3 60/75 80/100

Lower than 60 Higher than -3 Lower than 7 Greater than 0 Greater than 20 Lower than 0 Lower than 0 Lower than 60 Lower than 80


Unit labour costs adjustment, 2009-2013 (%) Sources: Haver y BBVA Research

Unit labor costs and current account deficits have adjusted in the periphery

-15

-10

-5

0

5

10

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

Germany France Italy

Spain Portugal Ireland

Current account (% GDP) Sources: Eurostat and BBVA Research

-20

-15

-10

-5

0

5

10

15

Gre

ece

Ire

land

Spain

Port

ug

al

Ita

ly

EA

17

De

nm

ark

Germ

any

Fra

nce

Ne

therl

and

s

Un

ite

d K

ing

dom

Austr

ia

Fin

land

Belg

ium

Labour Productivity (Sign switched) Wages Unit Labour Cost

Page 27


Unemployment since the beginning of the crisis (%) Sources: Haver and BBVA Research

The high unemployment remains the main problem of economic policy

0

5

10

15

20

25

30

EA

18

GER

FR

A

AU

T

BEL

NLD

FIN

ITA

SP

A

PO

R

IRE

GR

C

CY

P

SLV

SLK

DEN

SW

E

UK

Last Feb-08 Feb-13

The unemployment rate is well above that of 2008 (except in Germany)

Even so, it has begun to decrease earlier than in other recoveries

Second Quarter 2015

Europe Outlook


Section 1


Section 2


Section 3

Forecast: more solid growth expected for 2015

Section 4


Annex

Country breakdown

Index


Germany: growth gains momentum

2013 2014 2015 (f) 2016 (f)

Activity

REAL GDP (% YoY) 0.2 1.6 1.9 2.2

Private consumption 0.9 1.2 1.9 1.8


Investment -0.4 3.4 2.2 4.0

Domestic demand (contr. %) 0.7 1.2 1.7 1.9

Exports 1.7 3.8 4.6 5.6

Imports 3.2 3.3 4.9 6.0

Net exports (contr. %) -0.5 0.4 0.2 0.2

External sector

Current account balance (% GDP) 6.7 7.5 7.6 7.9

Public finances

General Govt. Balance (% GDP) 0.1 0.6 0.5 0.3

Prices

CPI, % avg. 1.6 0.8 0.3 1.4

Private consumption begins to grow at rates consistent with the favorable labor

market conditions

Uncertainty caused by geopolitical conflicts could lead companies to continue delaying

their investment plans to 2016

Net exports will play a minor role in contributing to growth



Germany: strong domestic fundamentals

Deviation from the EA18 average Source: BBVA Research and Eurostat

+18.2pp

-2.5pp

+9.9pp

GDP per working

age population

Public

consumption /

GDP

ratio

Employment

rate

Positive divergence with the average of the area is gradually broadening

Increasing public investment would help correct the current account surplus

Unemployment rate reached a historic low in March (4.7%)


France: recovery will move up in 2015

2013 2014 2015 (f) 2016 (f)

Activity

REAL GDP (% YoY) 0.4 0.4 1.1 1.8



Investment -0.8 -1.6 0.0 3.5


Exports 2.4 2.7 4.4 5.5

Imports 1.9 3.8 3.8 5.1

Net exports (contr. %) 0.1 -0.3 0.1 0.1

External sector

Current account balance (% GDP) -1.4 -2.3 -2.2 -2.2

Public finances

General Govt. Balance (% GDP) -4.1 -4.0 -3.6 -3.0

Prices

CPI, % avg. 1.0 0.6 0.1 1.1

The recovery in 2015 and 2016 will be based on domestic factors, especially

consumption

The delay in the deficit adjustment should also help

The loss of competitiveness is the main issue in the medium term



France: fiscal targets loosening to help economy recover


+12.4pp

+1.6pp

-4.6pp

GDP per working

age population

Evolution of ULC

%2008-14

Current account

balance

% GDP

Income is stable above the average

Wage growth have hampered competitiveness during the crisis

France hasn’t corrected the current account deficit in last years, as other countries did


Italy: out of recession in 2015

2013 2014 2015 (f) 2016 (f)

Activity

REAL GDP (% YoY) -1.7 -0.4 0.7 1.3


Public consumption -0.3 -0.9 -0.5 0.0

Investment -5.8 -3.2 -0.2 3.0

Domestic demand (contr. %) -2.5 -0.6 0.1 0.9

Exports 0.7 2.4 4.5 4.9

Imports -2.2 1.6 2.7 4.0

Net exports (contr. %) 0.8 0.3 0.6 0.4

External sector


Public finances


Prices

CPI, % avg. 1.3 0.2 0.0 0.9

We continue to expect a slow recovery in 2015 (0.7%), driven by exports

Investment will still be affected by uncertainty linked to the slow pace of

reforms

The growth potential is very low but could recover, should fiscal and labour market

reforms underway be completed Source: Eurostat and BBVA Research


Italy: reforms needed to increase the growth potential


-9.5pp

+40.2pp

-8.2pp

GDP per working

age population

Debt / GDP

ratio

Employment

rate

Income has worsened notably in the last two decades and counting

Slow privatization programme is delaying the debt reduction (132.1% of GDP in

2014)

Measures taken lately to encourage youth and female employment


Spain: growth revision to the upside in 2015

2013 2014 2015 (f) 2016 (f)

Activity

REAL GDP (% YoY) -1.2 1.4 3.0 2.7


Public consumption -2.9 0.1 0.8 0.6

Investment -3.8 3.4 5.7 6.4


Exports 4.3 4.2 6.1 7.5

Imports -0.5 7.6 6.5 7.8


External sector


Public finances


Prices

CPI, % avg. 1.4 -0.2 -0.2 1.4

Both in 2015 and in 2016, activity will grow steeply, supported by internal and external

factors

The recovery in the fundamentals and the change in tone of fiscal policy will

contribute to the sustained recovery in domestic demand

The contribution of net external demand to growth will be virtually nil



Spain: the labour market is improving, but challenges remain


-22.4pp

+10.8pp

-7.9pp

GDP per working

age population

Employment

rate

Income is still well below the average of the eurozone

Most of the gains in labour productivity were due to job destruction

But between 2015 and 2016 1,000,000 jobs will be created

Labour

productivity

%2008-14


Portugal: domestic fundamentals underpinning growth

2013 2014 2015 (f) 2016 (f)

Activity

REAL GDP (% YoY) -1.6 0.9 2.1 1.9


Public consumption -2.4 -0.3 -0.8 0.4

Investment -6.7 2.5 3.9 4.2


Exports 6.4 3.4 5.9 5.0

Imports 3.9 6.4 5.2 4.8


External sector


Public finances


Prices

CPI, % avg. 0.4 -0.2 0.2 1.0

Strong private consumption will be the main driver of growth

High level in business confidence indicators will be reflected in ongoing

recovery of investment

Exports will recover and contribute to growth, though marginally



Portugal: main challenges: improve competitiveness further and reduce overhang of corporate debt


-44.3pp

-12.9pp

+14pp

GDP per working

age population

Non-financial

corporations debt

% GDP

Income negative divergence is broadening

Labour costs almost haven’t changed since the beginning of the crisis

Need for further corporate deleveraging

Total labour

costs

%2008-14


UK: strong growth in 2015-16, but slowing due to lower support from fiscal and monetary policy

2013 2014 2015 (f) 2016 (f)

Activity

REAL GDP (% YoY) 1.7 2.8 2.5 2.3


Public consumption -0.3 1.7 0.2 -0.4

Investment 3.4 7.8 4.5 5.6


Exports 1.5 0.6 4.9 5.0

Imports 1.4 2.2 4.0 4.4


External sector

Current account balance (% GDP) -4.5 -5.5 -5.1 -4.8

Public finances


Prices

CPI, % avg. 2.6 1.5 0.3 1.7

Strong domestic demand will continue to be the main support for growth…

… while net exports will again make a small positive contribution

Domestic demand, the pace of inflation and the impact of Fed decisions on the pound will determine the date of the first hike of

BoE Bank Rate Source: Eurostat and BBVA Research


UK: job creation relatively strong, with composition changes towards more productive workers


-3.2pp

-5.5pp

-7.8pp

General Govt.

balance

% GDP

Cut in public consumption to achieve the fiscal consolidation targets

Unemployment peaked in 4Q11 and diminished gradually since then

Lack of competitiveness and loss of exports share

Unemployment

rate

Current account

balance

% GDP

Second Quarter 2015

Europe Outlook

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