Economy at a glance june 2018 Circulo de Empresarios

Economy at a glance june 2018 Circulo de Empresarios

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  World Competitiveness Ranking2018 Spain has lost two positions in the World Competitiveness Ranking developed by the Institute for Management Development (IMD), dropping from the 34th position to 36th out of a total of 63 countries that were analysed. Among European countries, Spain comes in at the 18th position, despite being the fifth largest economy in the EU. Spain loses competitiveness in prices, business legislation, tax policy, the proper running of the labour market and scientific infrastructures. In this edition (30th), the US leads the ranking, followed by Hong Kong and Singapore. Labour Market In May, the number of Social Security affiliates increased by 237,207, reaching a total of 18,915,668 contributors, with a year- on-year increase of 3.1% (+570,254 people). Progress in the following stands out: • Female affiliation hit a record high (in the historical series) with 8,773,053 women affiliates that account for 46.38% of the total contributors. • Affiliate-to-pensioner ratio, which after falling to 2.23 in December 2017, stood at 2.28 (back to 2016 levels). The number of unemployed people decreased by 83,738, to a total of 3,252,130, a record low since December 2008. In year- on-year terms, unemployment fell by 208,998 people (-6.04%) and 1,788,092, since its maximum level of February 2013. Risk Premium Despite an environment of high economic dynamism in the Eurozone, political uncertainty has pushed risk premiums above their annual minimum levels, mainly in Greece and Italy. Specifically, the risk premium of Spain even soared to 134 bp with an annual minimum of 66 bp, while that of Italy already exceeds 230 bp (record highs since December 2013). 1º 2º 3º 4º 5º 36º 7º 10º 6º 8º 9º US Hong-Kong Singapore Netherlands Switzerland Denmark UAE Norway Sweden Canada Spain ... 0 100 200 300 400 500 Greece Italy Portugal Spain France Risk premium (June 14th) Maximum 2018 Minimum 2018 Economy… at a glance June 2018 Social Security affiliates Thousands of people, % Source: Círculo de Empresarios based on Ministry of Labour, 2018 Risk premium (10Y yield spreads between euro area economies and Germany) Basis points Source: Círculo de Empresarios based on Funcas and ECB, 2018 IMD World Competitiveness Ranking, 2018 Source: Círculo de Empresarios based on IMD, 2018 2,5 2,7 2,9 3,1 3,3 3,5 3,7 3,9 4,1 18000 18200 18400 18600 18800 19000 Number of affiliates (left axis) YoY change (right axis)
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  ‘Economy at aglance’, a publication of the Círculo de Empresarios produced by its Department of the Economy, contains information and opinion from reliable sources. However, the Círculo 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 de Empresarios 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. www.circulodeempresarios.org 90 95 100 105 110 115 2010 2011 2012 2013 2014 2015 2016 2017 Real GDPgrowth 2010=100 Germany Spain France Italy 12 14 16 18 20 22 24 26 28 Emerging Markets The recent appreciation of the dollar and the upturn in the Internal Rate of Return (IRR) of the 10-year US bond (up to around 3%) with a recent interest rate hike to a range of 1.75-2%, have generated financial turmoil in emerging markets, mainly in Turkey and Argentina, where its structural risks have worsened. Turkey The Central Bank of Turkey has raised interest rates to 17.7% to control the upturn in inflation (12.15% in May), and thus recover the credibility in its strategy of reaching the 5% target. Also, this interest rate movement curbs the substantial depreciation accumulated during the year of the Turkish lira (-22% against the dollar). Argentina Since January 2018, the Argentine peso has lost 27.7% of its value against the dollar, which has led its Central Bank to intervene in the foreign exchange market, reducing its reserves by 10%, and raising interest rates to 40%. This situation has compelled the government to ask the IMF for a three-year $50 billion stand-by credit facility. The agreement entails adjustments to reduce its main imbalances: high inflation (27.5% estimated in 2018, Fitch), and current and fiscal deficits of more than 5% of GDP. Specifically: • Control inflation (targets: 17% in 2019, 13% in 2020, and 9% in 2021). • Achieve primary balance in 2020 and a surplus of 0.5% in 2021 (adjustment equivalent to 3% of GDP). • Maintain the level of social spending over GDP for three years. Italy With an average growth rate of 0.5% for two decades and a high level of public debt (132% of GDP in 2017), and adding on the uncertainty generated by Euroscepticism of the new government of Italy, which has put its 2-year bond under pressure as it spiked to 2.8% at the end of May (-0.33% in April). According to Bruegel, the main measures proposed by the new government (basic income, tax reform, etc.) would have an estimated cost of 6 to 7 points of its GDP ($109bn-$126bn). 3,5 3,7 3,9 4,1 4,3 4,5 4,7 4,9 TurkishLirato US dollar (USD/TRY), 2018 Political uncertaintyarising from the upcoming elections (24th June) and Turkish Central Bank loses credibility Argentine Peso to US dollar (USD/ARG) Source: Círculo de Empresarios based on Investing, 2018 Source: Círculo de Empresarios based on Eurostat, 2018 27.25% 40% March May Official interest rate (BCRA) 2000 105 100 Italy’s government debt (% GDP) 132 2007 2017 Source: Círculo de Empresarios based on Investing, 2018