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Perspectives Global and Spanish Economy G4 2019
The document provides an overview of the global and Spanish economies in Q4 2019. It discusses the synchronized global economic slowdown, with the IMF forecasting the lowest growth rate since the beginning of the decade. Advanced economies are showing signs of nearing the end of their business cycles, while emerging markets face risks from high debt levels. The trade war and Brexit continue to increase uncertainty. The Eurozone industrial sector is contracting and unemployment remains low. China's growth is moderating as both private and public demand slow. Hong Kong's economy declined in Q3 2019 due to social protests. Latin American growth forecasts were revised downwards.
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Perspectives Global and Spanish Economy G4 2019
- 1. Perspectives on Global andSpanish Economy Q4-2019 January 2020 QUARTERLY REPORT
- 2.
- 3. Overview of theeconomic situation Q4-2019 3 Source: Círculo de Empresarios, 2020 The main international organisations (IMF, OECD, World Bank, and European Commission) warn of a global economy in a synchronised slowdown against the backdrop of mounting uncertainty and new geopolitical risks. Thus, the second half of 2019 has been marked by the outbreak of social protests and institutional crises in Hong Kong and some Latin American countries such as Chile, Bolivia, and Colombia. Moreover, there are risks and uncertainties associated with the US-China trade war, and the exit of the United Kingdom from the EU, which, although evolve favourably, still have a significant impact on the global economy. In the advanced economies, signs of nearing the end of the expansion phase of the business cycle persist, among which the most pronounced is the significant deterioration in industry and trade against a backdrop of record low levels of unemployment. The US maintains its growth rate around 2% per year, although there is some moderation in consumption, investment, and job creation. In the EU, Germany’s industrial weakness has been particularly marked in the automotive sector. In emerging economies, interest rate cuts by most central banks stand out, together with fiscal consolidation processes (Brazil & China). However, there still are risks associated with high levels of debt and the evolution of their growth & inflation rates.
- 4. Global economic trends2019/20 4 Source: Círculo de Empresarios, 2020 Synchronised slowdown International merchandise trade at 2009 levels Inflation at 2013 levels Accommodative monetary policy 90% of economies experience a slowdown in their GDP The WTO revises its growth forecasts down to 1.2% in 2019 Price growth does not exceed 2% per year in most advanced economies The Fed cuts interest rates for the first time in 11 years Significant industrial deterioration Eurozone industry is in a contraction phase since the end of 2018 2 3 4 5 Social and geopolitical conflicts globally (Hong Kong, Iran, and Latin America) 6 1
- 5. Synchronized slowdown inglobal growth Source: Círculo de Empresarios based on World Bank & IMF, 2020 5 The IMF forecasts that in 2019, global GDP growth will fall to its lowest rate since the beginning of the decade (3%) and warns that the global economy is experiencing a synchronised slowdown -2 0 2 4 6 Advanced economies Emerging economies World GDP -6 -3 0 3 6 9 12 15 2007 2009 2011 2013 2015 2017 2019 China Japan UK US Eurozone India Evolution of world GDP % change year-on-year; and contributions to growth Synchronisation in economic growth % change year-on-year
- 6. Eurozone China Source: Círculo deEmpresarios based on IMF, 2020 6 2019 2020 Japan UK US Brazil 2019 2020 Argentina Turkey 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2.4 2.1 1.2 1,4 1.2 1.4 6.1 5.8 0.3 3 -3.1 -1.3 0.9 2.0 0.9 0.5 ADVANCED 2019 2020 1.7 1.7 EMERGING 2019 2020 3.9 4.6 Growth forecast India 2019 2020 6.1 7 0.1 0 -1.2 2.8 -1.9 -0.2 -1.2 -0.1 -0.1 Revised forecast April 2019 (pp)
- 7. Mounting political andtrade uncertainty Source: Círculo de Empresarios based on Caldara and Lacoviello & Policy Uncertainty, 2020 7 c The US imposes tariffs on imports from China, the EU, Canada, and Mexico The EU and Canada retaliate and impose tariffs on the US A trade war truce is announced between the US and China The US increases tariffs by $200 billion on Chinese imports The US creates a blacklist of Chinese technology companies US tariffs on European imports 400 300 200 100 0 50 Trade deal (US – China) Apr 2018 Jun 2018 Dec 2018 Jan 2019 May 2019 Dec 2019 0 50 100 150 200 250 300 350 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Policy uncertainty Trade uncertainty Global Economic Policy Uncertainty Index Index value Major events of the trade war
- 8. Significant decline inworld trade Source: Círculo de Empresarios based on CPB World Trade Monitor & FMI, 2020 8 According to the CPB World Trade Monitor, between January and October, the volume of world trade dropped at an average annual rate of 0.5%, compared with the 4.2% increase in the same period of 2018 This evolution is mainly explained by the negative contribution to the growth of world imports by China and other countries in East Asia -2 -1 0 1 2 3 4 5 6 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 Jun-18 Oct-18 Feb-19 Jun-19 Oct-19 YoY change MA(3 months) Interquarterly change MA(3 months) -2 0 2 4 6 8 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 North America Eurozone China East Asia excluding China Other emerging countries UK Rest of the world Evolution of world trade (%) Contribution to the growth of world imports, by region (pp)
- 9. Industrial decline andunemployment at record lows The decline in world trade predominantly affects the manufacturing sector, especially in the US and the Eurozone Source: Círculo de Empresarios based on Oxford Economics, 2020 9 -4 -2 0 2 4 6 8 2014 2015 2016 2017 2018 2019 China Eurozone US World 1 3 5 7 9 11 13 Eurozone Japan US All this in an environment in which the unemployment rate of the main advanced economies are kept at historic lows Evolution of manufacturing industry % change year-on-year Unemployment rate, major advanced economies %
- 10. Dec-18 Jan-19 Feb-19Mar-19 Apr-19 May-19 Jun-19 Jul-19 Ago-19 Sep-19 Oct-19 Nov-19 Dic-19 Germany 51.5 49.7 47.6 44.1 44.4 44.3 45 43.2 43.5 41.7 42.1 44.1 43.7 France 49.7 51.2 51.5 49.7 50 50.6 51.9 49.7 51.1 50.1 50.7 51.7 50.4 Italy 49.2 47.8 47.7 47.4 49.1 49.7 48.4 48.5 48.7 47.8 47.7 47.6 46.2 US 53.8 54.9 53 52.4 52.6 50.5 50.6 50.4 50.3 51.1 51.3 52.6 52.4 Spain 51.1 52.4 49.9 50.9 51.8 50.1 47.9 48.2 48.8 47.7 46.8 47.5 47.4 UK 54.2 52.8 52 55.1 53.1 49.4 48 48 47.4 48.3 49.6 48.9 47.5 Japan 52.6 50.3 48.9 49.2 50.2 49.8 49.3 49.4 49.3 48.9 48.4 48.9 48.4 China 49.4 49.5 49.2 50.5 50.1 49.4 49.4 49.7 49.5 49.8 49.3 50.2 50.2 India 53.2 53.9 54.3 52.6 51.8 52.7 52.1 52.5 51.4 51.4 50.6 51.2 52.7 Brazil 52.6 52.7 53.4 52.8 51.5 50.2 51 49.9 52.5 53.4 52.2 52.9 50.2 World 51.5 50.8 50.6 50.6 50.3 49.8 49.4 49.3 49.5 49.7 49.8 50.3 50.1 Global moderation of PMI’s in 2019 Source: Círculo de Empresarios based Markit, 2020 10 Economic sentiment worsens especially in the Eurozone, with the biggest variations in Italy and Germany Note: The JP Morgan Global Manufacturing PMI has been used to calculate the global data 67%oftheworldGDP Manufacturing PMI 50=threshold (a value above 50 represents an expansion)
- 11. Globalisation 4.0: newbusiness pattern Source: Círculo de Empresarios based on World Bank & IMF, 2020 11 Globalisation 1.0 (s. XIX- 1914) Globalisation2.0 (1945- 1989) Globalisation 3.0 (1989- 2008) Trade Scientific innovations Textiles/ manufacturing Industrial products Value cains Services and digital goodsSteam machine and Railroad Car and airplane Computers and Internet Globalisation began to develop fully in the second half of the 19th century over three different phases, driven mainly by technological advances, trade in goods, business investment, and integration processes Globalisation 4.0 The great recession of 2008, the economic boom of China, the 4th Industrial Revolution, and the protectionism tensions mark the beginning of the so-called Globalisation 4.0 In this new phase, a new trade pattern is configured in which services gain prominence, regionalisation increases and labour cost arbitrage loses relevance
- 12. China: growth moderation Source:Círculo de Empresarios based on Oxford Economics, 2020 12 On the demand side, both private and public consumption and net exports slow down In Q3 2019, China's GDP increased by 6% year-on-year, its slowest pace in three decades, forecasting it to gradually decline to around 5% annually in 2025 0 2 4 6 8 10 12 14 16 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2021 2023 2025 4 10 16 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Private consumption Household disposable income 2018 2019 2020 Domestic demand 7.2 5.6 5.4 Private consumption 7.2 6.8 6.6 Investment 4.7 4 3.9 Public consumption 16.3 5.5 6.6 Exports of good and services 4.3 1.5 1.7 Imports of goods and services 6.5 -1.2 2.3 GDP 6.6 6.1 5.7 CPI average 2.1 2.8 3.2 Total trade balance ($ bn) 102.9 198.3 183.7 GDP % change year-on-year Household consumption and income % change year-on-year Forecasts by Oxford Economics % change year-on-year
- 13. -4 -2 0 2 4 6 8 10 12 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Primary and secondarytransfers Trade balance of services Trade balance of goods Current account Source: Círculo de Empresarios based on World Bank & IMF, 2020 13 Forecast In 2019, China's current account surplus hinted to a slight recovery, as imports dropped due to weak domestic demand, although a reduction in the balance is forecasted in the coming years In turn, the trade war with the US continues to negatively affect its exports -40 -30 -20 -10 0 10 20 30 40 50 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Exports to US Exports to the world Exports to the world excluding the US China: external sector in light of its changing production model Current account balance % of GDP Exports of goods, China % change year-on-year
- 14. Source: Círculo deEmpresarios based on World Bank, IMF & Thomson Reuters, 2020 14 In Q3 2019, Hong Kong's GDP declined by 2.9% year-on-year, mainly due to dwindling private consumption (-3.4% year-on-year). Forecasts point towards an economic stagnation for the rest of the year with a mere 0.3% GDP growth 0 20.000 40.000 60.000 China Hong Kong 1980 1995 2019 Currently, Hong Kong accounts for 2.7% of China's GDP and its exports to China account for roughly 90% of its GDP. In terms of per capita income (PCI), Hong Kong fairs considerably well in comparison with China, almost three-fold Note: Currently, Hong Kong's exports of goods and services represent 188.3% of its GDP -3 0 3 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 0 50 100 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Exports from China to Hong Kong Exports from Hong Kong to China Hong Kong: social protests negatively impact the economy Evolution of Real GDP % change year-on-year GDP per capita PPP in $ Evolution of the external sector % of GDP
- 15. Latin America: growthprospects The growth forecasts of the Latin American economies for 2019 and 2020 have been revised downwards in alignment with the global context of economic slowdown, uncertainty, decline in commodity prices, and trade tensions Source: Círculo de Empresarios based on IMF, 2020 0.2 1.8 2019 2020 0.9 2 0 1 2 3 4 2019 2020 2.5 3 2019 2020 -3.1 -1.3 -4 -2 0 2 4 2019 2020 0.4 1.3 2019 2020 0.4 2.3 2019 2020 Brazil UruguayChile Peru Colombia 3.4 3.6 2019 2020 Mexico Argentina 2.6 3.6 0 1 2 3 4 2019 2020 LATAM Current forecastPrevious forecast 15
- 16. Latin America: risinguncertainty Source: Círculo de Empresarios based on Oxford Economics & BBVA Research, 2020 16 Uncertainty index Points Social conflicts 2019 Institutional fragility and the announcement of economic reforms have unexpectedly led to severe political and social tensions, mainly in Chile, Colombia, and Bolivia Level of economic and political risk 1 = low risk, 10 = high risk 0,0 0,2 0,4 0,6 0,8 Q1 2019 Q2 2019 Q3 2019 Average 2009-2019 Shortage of food and medicine, and hyperinflation Social protests against the Government Electoral fraud and resignation of the President Evo Morales Social opposition to new labour and pension reform Protests against the fuel price increase Venezuela Colombia Ecuador Peru Chile Bolivia Government institutional crisis 0 2 4 6 8 Economic risk Political risk
- 17. Latin America: inflationand currencies Source: Círculo de Empresarios based on Oxford Economics, 2020 17 Evolution of the CPI % change year-on-year Exchange rate against the dollar January 2017 =100 0 2 4 6 8 2018 2019* 2020* 2018 2019* 2020* 2018 2019* 2020* 2018 2019* 2020* 2018 2019* 2020* 2018 2019* 2020* 0 10 20 30 40 50 60 2018 2019* 2020* Argentina Brazil Mexico Chile Colombia Peru Uruguay Range set as inflation target The uncertainty in the markets has caused a greater depreciation of the main currencies, particularly the evolution of the Argentine peso and the Brazilian real stand out. Inflation remains within the target level of central banks in most Latin American countries, except in Argentina 800 Argentine Peso (right axis) Chilean Peso Mexican Peso Brazilian Real Colombian Peso Peruvian Sol
- 18. Argentina: recession andfiscal adjustment Source: Círculo de Empresarios based on Oxford Economics & BBVA Research, 2020 18 Quarterly GDP % change year-on-year Argentina continues to be marred in recession, with forecasts of shrinking GDP of -3.1% in 2019 Public and primary deficit % of GDP Annual Fiscal Targets % of GDP Compliance with the fiscal target set for 2020 (primary balance = 1% of GDP) will require an increase in taxes or a greater adjustment of expenditure 0 4.3 -2.6 -6.4 -1.8 -0.1 -7 -5 -3 -1 1 3 5 -6 -5 -4 -3 -2 -1 0 2012 2013 2014 2015 2016 2017 2018 2019* 2020* Public deficit Primary deficit Total incomes Primary expenditure Primary balance 2016 19.8 24 -4.2 2017 18.8 22.6 -3.8 2018 17.8 20.1 -2.3 June 2019 (last 12 months) 18.5 19.7 -1.2 Target 2019 -0.5 Target 2020 1
- 19. Brazil: economic recoveryand structural reforms Source: Círculo de Empresarios based on Ministry of Economy (Brazil), Bloomberg & IMF, 2020 19 Growth of real GDP and its components 2014 = 100; and % change year-on-year According to forecasts, in the next decade, the Social Security reform in Brazil shall result in a fiscal saving to the tune of $197 billion Impact of pension reform on public debt % of GDP Brazil's economic recovery will be dependent on disentangling a host of cyclical factors (inflation control and interest rate cuts), as well as by structural reforms such as Social Security Despite the economic recovery, the main starting points of domestic demand are still below the levels prior to the 2014 recession -6 -1 4 9 14 19 40 50 60 70 80 90 100 110 GDP (right axis) Investment Consumption Private consumption 91.4 96 60 70 80 90 100 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Base scenario With Social Security reform Without Social Security reform
- 20. Source: Círculo deEmpresarios based on Thomson Reuters, Fed & FRED St. Louis, 2020 US: economic expansion at a moderate pace Real GDP growth % ; and contributions to GDP growth (pp) 2021 2.1 2.0 1.8 20202019 20 The US economy marks the longest period of economic expansion in its history (124 months), although at a more moderate pace Fed real GDP forecasts % GDP growth and consecutive months of expansion Average growth (%); and months in expansion 7,1 5 4,3 2,3 106 12 92 120 124 0 20 40 60 80 100 120 140 0 1 2 3 4 5 6 7 8 Annualized real GDP (%) Months (right axis) -2 0 2 4 6 2015 2016 2017 2018 2019 Consumption Investment Public expenditure Net trade GDP
- 21. 0 5 10 15 20 25 30 35 40 45 50 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 Jan-20 Source: Círculo deEmpresarios based on FED of NY and St Louis, Goldman Sachs & Bloomberg, 2020 21 US: the probability of recession decreases but household consumption and investment deteriorates Note: in the economic forecast survey of the Wall Street Journal (December 2019) the economists surveyed estimated a probability of 25.85% Probability of a recession in the US % (in the next 12 months) Between January and September 2019, the growth in household consumption and investment slowed down to 2.5% year-on-year average (vs 3.1% in previous year) and 2% (vs 4.5% in 2018 ), respectively Recession probability November 2020: 24.6% Evolution of household consumption and investment % change year-on-year -1 0 1 2 3 4 -4 -2 0 2 4 6 8 10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Investment Consumption (right axis)
- 22. Source: Círculo deEmpresarios based on Thomson Reuters, 2020 22 US: good labour market behaviour Job creation, non-farm payrolls Thousands of jobs Evolution of unemployment in the US % Job creation increases and the unemployment rate continues to be at the record lows of 1969 3 4 5 6 7 8 9 10 11 Jan-60 Jan-63 Jan-66 Jan-69 Jan-72 Jan-75 Jan-78 Jan-81 Jan-84 Jan-87 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Jan-17 0 50 100 150 200 250 300 350 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Employment growth MA (6 months)
- 23. -2 -1 0 1 2 3 4 5 2012 2013 20142015 2016 2017 2018 2019 Labour productivity Unit Labour Cost Source: Círculo de Empresarios based on BEA, Focus Economics, St Louis Fed y Thomson Reuters, 2020 23 US: slight rise in inflation In November, inflation exceeded 2% per year for the first time in the last 12 months, mainly due to the increase in energy prices, although it remains below the core inflation (at 2.3% for the second consecutive month) US inflation indicators % change year-on-year * Personal consumption expenditure; Fed benchmark at which the 2% target is set in the medium-term Wages and labour costs % change year-on-year All this in an environment where the growth of unit labour costs exceeds 2% year-on-year and labour productivity decreases to 1.5% year-on-year -0,5 0 0,5 1 1,5 2 2,5 3 3,5 Jan-12 May-12 Sep-12 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 Jan-19 May-19 Sep-19 CPI Core CPI General PCE* Inflation target
- 24. 24 Changing course ofthe Fed's policy Source: Círculo de Empresarios based on Bloomberg & Fed, 2020 In July, the Fed cut interest rates for the first time in 11 years, in a context of moderate inflation and persistence of both national and international risks Fed economic growth Outlook Fed Balance sheet $ billions Fed official interest rate % 0 1 2 3 4 5 QEI QEII QEIII "Taper Talk" Taper In December, the Fed once again increased its balance above $4 billion 0 0,5 1 1,5 2 2,5 3 3,5 4 Q12010 Q32010 Q12011 Q32011 Q12012 Q32012 Q12013 Q32013 Q12014 Q32014 Q12015 Q32015 Q12016 Q32016 Q12017 Q32017 Q12018 Q32018 Q12019 Q32019 Q12020 Q32020 Interest rate swap 10 years Interest rate swap 5 years Official interest rate 2019 2020 2021 Long-term GDP 2.1 2 1.8 1.9 Last forecast 2.1 1.9 1.8 1.9 Unemployment rate 3.6 3.7 3.8 4.2 Last forecast 3.7 3.8 3.9 4.3 PCE inflation 1.5 1.9 2 2 Last forecast 1.8 2 2 2 Core CPI 1.8 1.9 2 Last forecast 2 2 2
- 25. -5 -4 -3 -2 -1 0 1 2 3 4 5 -1,5 -1,0 -0,5 0,0 0,5 1,0 1,5 Q1 2018 Q3 2018 Q1 2019 Q3 2019 -5 -4 -3 -2 -1 0 1 2 3 4 5 -1,5 -1,0 -0,5 0,0 0,5 1,0 1,5 Q1 2018 Q3 2018 Q1 2019 Q3 2019 -5 -4 -3 -2 -1 0 1 2 3 4 5 -1,5 -1,0 -0,5 0,0 0,5 1,0 1,5 Q1 2018 Q3 2018 Q1 2019 Q3 2019 Europe: the EuropeanCommission forecasts growth at a moderate pace Source: Círculo de Empresarios based on European Commission, 2020 25 In Q3 2019, the decline in the Eurozone industrial manufacturing sector intensifies to 2.2% annually Growth forecasts for 2019 % change year-on-year Evolution of Eurozone sector indicators % EU 28 Eurozone 20202019 Industrial production Construction Retail trade volumes The trade war, the slowdown in China, and the political uncertainty stemming from Brexit have conditioned the economic prospects of the region in 2019 1.4 1.51.4 1.5 GDP CPI 1.1 1.21.2 1.2 GDP CPI QoQ change (left axis) YoY change (left axis)
- 26. 0 2 4 2015 2016 2017 2018 2019 2020 0 2 4 2015 2016 2017 2018 2019 2020 0 2 4 2015 2016 2017 2018 2019 2020 -1 0 1 2 3 2015 2016 2017 2018 2019 2020 0 2 4 2015 2016 2017 2018 2019 20200 2 4 2015 2016 2017 2018 2019 2020 Eurozone: economic slowdown Source:Círculo de Empresarios based on Oxford Economics, IMF & Thomson Reuters, 2020 26 Growth in the Eurozone suffers as the main economic indicators deteriorate Main leading indicators, Eurozone Points Eurozone Economic growth in the Eurozone % change year-on-year France Germany Spain Netherlands Italy Average growth 1995-2019 35 40 45 50 55 60 65 70 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 Mar-18 Jul-18 Nov-18 Mar-19 Jul-19 Nov-19 PMI manufacturing PMI services ZEW EC ESI
- 27. Exports of goods %change year-on-year (3-months MA) Alemania: loss of dinamism Source: Círculo de Empresarios based on Oxford Economics & Eurostat, 2020 27 Economic uncertainty and global slowdown condition German GDP growth German exports to Turkey and the United Kingdom are the ones that suffered the greatest setbacks since the end of 2018 % change year-on-year Possible scenarios of German GDP growth Growth of real GDP by component % change quarter-on-quarter; & contributions to growth (pp) -0,5 0 0,5 1 1,5 2 2,5 3 2013 2014 2015 2016 2017 2018 2019 2020 2021 No deal Brexit Rising trade tensions Eurozone slowdown Baseline -0,5 0,5 1,5 2012 2013 2014 2015 2016 2017 2018 2019 Domestic demand External demand GDP -40 -20 0 20 40 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 China EU 28 UK Turkey US
- 28. -0,2 0,0 0,2 0,4 2012 2013 20142015 2016 2017 2018 2019 Industry Construction Public sector Other services Employment Germany: setback in industry Source: Círculo de Empresarios based on Oxford Economics, 2020 28 Among the main economies of the Eurozone, Germany has suffered the largest industrial decline, mainly due to the deterioration of its automotive sector Evolution of industrial production, Eurozone % change year-on-year Job creation by sectors % change quarter-on-quarter; & contribution to total employment (pp) Automotive sector production and IFO % change quarter-on-quarter -40 -20 0 20 40 2007 2009 2011 2013 2015 2017 2019 Automobile sector IFO Business Expectation -10 -5 0 5 10 15 20 -25 -20 -15 -10 -5 0 5 10 15 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Difference (right axis) Germany Eurozone excluding Germany
- 29. -0,8 -0,5 -0,2 0,1 0,4 0,7 1,0 1,3 Q12015 Q22015 Q32015 Q42015 Q12016 Q22016 Q32016 Q42016 Q12017 Q22017 Q32017 Q42017 Q12018 Q22018 Q32018 Q42018 Q12019 Q22019 Q32019 Domestic demand Stock External demand GDP Francemaintains a stable growth rate Source: Círculo de Empresarios based on Insee & Oxford Economics, 2020 29 In Q3 2019, France's GDP growth remained at an annual 1.4% due to the progress in domestic demand on the back of the expansionary fiscal policy Public deficit % of GDP In 2019, the fiscal deficit is expected to be above 3% of its GDP, although it will begin to reduce after 2020 Real GDP growth by component % change quarter-on-quarter; & contributions to growth (pp) -3,5 -3,0 -2,5 -2,0 -1,5 -1,0 -0,5 0,0 2017 2018 2019 2020 2021 2022 Fiscal target Oct-2017 Fiscal target Oct-2018 Fiscal target Oct-2019 Results and OE forecasts Forecasts
- 30. The ECB upholdsthe monetary stimulus 30Source: Círculo de Empresarios based on ECB, 2020 In September 2019, in light of an economic slowdown, the ECB maintained official interest rates at 0% and lowered the bank deposit facility rate to -0.5% In November 2019, the ECB resumed the net asset purchases at a rate of €20 billion per month Currently, the ECB's balance doubles that of the Fed and represents 40% of the Eurozone's GDP ECB policy interest rate % Balance sheets of the main central banks % of GDP 0 50 100 2007 2013 2018 BoJ ECB Fed -1 0 1 2 3 4 5 6 7 Deposit rate Marginal lending rate Official interest rate
- 31. United Kingdom: generalelections and Brexit Source: Círculo de Empresarios based on Bloomberg & KU Leuven, 2020 31 Following the outcome of the elections in which the Conservative Party won, the British Parliament approved on December 20, 2019 the withdrawal agreement bill to leave the EU which is planned for January 31, 2020 70,410 141,320 291,930 122,950 47,310 15,790 17.020 30,750 43,430 17,890 5,570 4,970139,140 50,330 19,970 9,080 2,710 440 7,430 16,900 73,200 42,390 9,720 526,830 Employment that would be affected by a hard Brexit No. of jobs High impact Low impact Election result December 2019 No. of seats Variation relative to the 2017 elections % +1.2 -7.8 +0.8 +4.2 365 203 48 11 8 15 Conservatives Labour SNP Liberal Democrat Democratic Unionist Party Others 326 Seat Majority
- 32. Evolution of BrentSpot Price $ per barrel Oil: new upward pressures Source: Círculo de Empresarios based on EIA, 2020 32 In 2019, the price of a barrel of Brent soared by 34% to hit around $70, although it still remains far from the record highs reached in October 2018 Upward pressures 2 1 Escalating political tensions between the US and Iran 2 US–China trade war persists 1 OPEC production cuts Downward pressures However, the evolution of oil prices in the short- and medium-term hinge on these causes as follows... Global economic growth slumps +34.0 -24.2 3 Future outcome of the US elections 50 55 60 65 70 75 80 85 90 2018 2019
- 33. Stock markets (I):exceed the pre-correction levels at the 2018 year-end collapse, in an environment of lower volatility 33Source: Círculo de Empresarios based on Bloomberg, 2020 World Stock Index (MSCI WORLD) January 2018=100 VIX Volatility index 85 90 95 100 105 110 115 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 0 10 20 30 40 50 60 Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14 Sep-14 Apr-15 Nov-15 Jun-16 Jan-17 Aug-17 Mar-18 Oct-18 May-19 Dec-19
- 34. Stock markets (II):The world's main stock exchanges are making great strides despite global risks 34Source: Círculo de Empresarios based on Bloomberg, 2020 Main stock market indices in the world January 2018=100 Nasdaq +36.7% S&P 500 +28.1% Stoxx 600 +22.3% Dow Jones +22.1% Topix Japan +17.7% 75 85 95 105 115 125 135 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 S&P500 Topix Stoxx 600 Nasdaq Dow Jones Ultra-expansionary monetary policy measures by the main central banks (Fed and ECB) have had a significant impact on the stock markets, especially in the last part of the year Increase in share price since January 2019
- 35. 35Source: Círculo deEmpresarios based on Thomson Reuters, 2020 Stock markets (III): worse stock market behaviour in Europe Banks were already struggling with margin pressures and then the ECB lowered the bank deposit facility rate, both of which continue to hamper the share price and profitability of the European banking sector Stock market evolution of the banking sector January 2016=100 Return on Assets (ROA) % Note: Currently, the ECB deposit facility rates are at negative levels, around -0.5% -0,5 0 0,5 1 1,5 2 Eurozone US UK 60 80 100 120 140 160 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 S&P 500 banks EUROSTOXX banks
- 36. 2.6 1.6 1.5 0.8 0.6 -0.1 -0.1 -0.6 -1.8-2 -1 0 1 2 3 36Source:Círculo de Empresarios based on Thomson Reuters, 2020 Fixed income: inverted US Treasury yield curve The end of the business cycle keeps the 10-year bond yield at a minimum, especially in Germany and Japan 10-year Treasury yield, US, Germany, & Japan % 2-year Treasury yield, main economies % The persistence of negative rates in the short-end of the European curves stands out -0,8 -0,6 -0,4 -0,2 0 0,2 0,4 0,6 0,8 1 1,3 1,6 1,9 2,2 2,5 2,8 3,1 3,4 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 US (left axis) Germany (right axis) Japan (right axis)
- 37.
- 38. 38 Executive Summary In 2019,the Spanish economy will expand by 2% annually according to the Bank of Spain forecasts, which is 0.4pp less than in 2018, in an environment of economic, political and institutional instability and reformist paralysis. Although Spain continues to lead the growth among the major European economies with a 1.9% year-on-year in Q3 2019 compared to 1.2% on average in the Eurozone, the OECD has warned that our situation is deteriorating at a faster pace than anywhere else in the monetary union. This slowdown in the Spanish economy is mainly explained by the loss of dynamism in domestic demand and INE’s revision of the historical GDP series. Private consumption has dwindled, and investment has diminished in light of the worsening economic outlook and waning business confidence. In contrast, public spending, with a carried over General State Budget (PGE 2018), continues to increase as a result of the measures approved by the former incumbent Government through Royal Decree-Law marking another year wasted in terms of fiscal consolidation. In turn, external demand has a weak contribution to GDP growth. In this context, the Spanish economy manifests risks in the medium-term, given that the global economy is in a synchronised slowdown, the tariffs imposed by the US, the persistence of high levels of unemployment, and high public deficit & debt, all of which combined, reduce the margin of fiscal policy in the event of a possible new recession, especially at a time when the effectiveness of the monetary policy of the ECB is in doubt.
- 39. 39 Risks • Persistence ofunemployment, especially youth and long-term, and duality in the labour market • Decline in productivity and competitiveness • Indetermination about the future orientation of economic policies and the budget consolidation process in light of the new configuration of the Government against a backdrop of rising territorial political tensions • Limited leeway to manoeuvre the European monetary policy and the Spanish fiscal policy in the wake of a possible recession • Impact of the US-China trade war and the new tariffs imposed by the US on the European Union and specifically on Spain. According to the Bank of Spain, the latest protectionism of the US and China will shrink Spain’s GDP by 0.2pp • Uncertainty about the final impact of Brexit • High levels of public deficit & debt, made worse by the expansion of public spending through Royal Decree- Law (RDL) and the lack of a General State Budget (PGE), which delay the necessary fiscal consolidation • Population ageing and its impact on the sustainability of the welfare state • Deterioration of the economic situation in the major European economies • Impact of the energy and environmental transition
- 40. 40 2019*2018 * Forecast Source: Círculode Empresarios based on The Bank of Spain and FUNCAS, 2020 The main international and national organisations have revised down their growth forecasts for 2019 from 2.2%-2.4% annually that they forecasted in the first half of 2019 to 1.8%-2.1% annually. This trend would place the progress of the Spanish economy between 1.5% and 1.8% in 2020, hinged on the political and economic context both nationally and globally The growth deceleration of the Spanish economy is confirmed 2.4% 2% 2020* 1.7% Bank of Spain forecasts (Dec. 2019) % change year-on-year The OECD and the analysts’ consensus (FUNCAS) forecasts a growth of 2% for 2019 and 1.6% for 2020, which is 0.1pp and 0.2pp below the government forecast
- 41. Greater contribution ofdomestic demand… Source: Círculo de Empresarios based on The Bank of Spain, ECB, & INE, 2020 41 GDP and contribution of domestic & external demand % change YoY & pp The GDP increased by 0.4% quarterly and 1.9% year-on- year, which are similar rates to the previous quarter, and the lowest since 2014 Comparing Q3 2019 to Q2 2019, we can observe that the contribution of domestic demand to year-on- year GDP growth has increased by 0.6pp to hit 1.8 percentage points. On the other hand, the contribution of external demand has decreased its contribution by 0.7pp to hit 0.1pp The year-on-year growth of the Spanish economy exceeds that of the Eurozone by 0.7pp (1.2%) 3.2 3.9 4 4.2 3.7 3 3 2.5 2.5 3.2 2.8 3 2.8 2.3 2.2 2.1 2.2 2 1,9 2 1.8 2 2 2 2 1.8 1.8 2.1 2.1 2.5 2.8 2.7 2.4 2.2 1.7 1.2 1.3 1.2 1.1 1.1 -1 0 1 2 3 4 5 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018 3Q2018 4Q2018 1Q2019 2Q2019 3Q2019 2019* Spain´s domestic demand Spain´s external demand Spain´s GDP Eurozone GDP * Bank of Spain and OECD forecasts
- 42. ...although it showsclear signs of slowdown in an environment rife with uncertainty Source: Círculo de Empresarios based on INE, 2020 42 • The final consumption of the public administrations continues to soar at 2.2% year-on-year • Investment regains dynamism and grows at 2.8% year-on-year after its deceleration to 1.5% in Q2 2019, although it is 3.3pp below the Q3 2018 figure • Household consumption recovers to 1.4% year-on-year, compared with the 0.8% in Q2 2019 Evolution of the main components of domestic demand and savings % change year-on-year; and % Gross disposable household income In Q3 2019 • The household saving rate stood at 6.4% of their gross disposable household income (GDHI) in Q3 2019, which is 1pp higher than the one recorded a year earlier 4,0 4,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0 8,5 -2,0 0,0 2,0 4,0 6,0 8,0 10,0 12,0 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 Households consumption (left axis) Public consumption (left axis) Investment (left axis) Savings rate (right axis) % Change year on year % GDHI
- 43. PMIs in decline 43Source:Círculo de Empresarios based on Markit, 2020 Spain PMIs A 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 Moderately wilting PMIs confirm the deceleration of the Spanish economy in 2019 The services PMI recovers to 54.9 points In December, the manufacturing PMI was below 50 points for a seventh month in succession, and reports its worst value since 2013 47.4 54.9 40 45 50 55 60 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Nov-17 Apr-18 Sep-18 Feb-19 Jul-19 Dec-19 Manufacturing PMI Services PMI Economic expansion Economic contraction
- 44. End of theupward cycle in real estate 44 In October, the purchase and sale of homes decreased by 1.5% year-on-year, to a total of 42,825 operations • ▼ pre-owned homes operations were down by 1.8%, to a total of 34,897 • ▼ purchase and sale of new homes were down by 0.1%, to a total of 7,928 Evolution of registered homes (new and pre-owned) % change year-on-year for the period of Jan-Oct; and number of homes Between January and October 2019, home sales fell by 3% year-on-year, the first negative record after five years of growth, mainly due to the drop of 1.8% in operations in the pre-owned housing market (81.6% of the total), compared to the mere drop of 0.1% in new housing operations Source: Círculo de Empresarios based on INE, 2020 -28.1 -27.1 8.8 -17.6 -10.2 -1 2.9 11.9 14.6 15.7 12.7 -3 0 50000 100000 150000 200000 250000 300000 350000 400000 450000 500000 -35,0 -30,0 -25,0 -20,0 -15,0 -10,0 -5,0 0,0 5,0 10,0 15,0 20,0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Pre-owned homes (right axis) New homes (right axis) % change year-on-year for the period of Jan-Oct (left axis)% Number of homes
- 45. 45 * Forecasts byThe Bank of Spain Source: Círculo de Empresarios based on the Ministry of Labour, Migrations & Social Security, the Bank of Spain & INE (Labour Force Survey), 2020 Evolution of S.S. affiliation and registered unemployment People (December) and % change year-on-year Dec-to-Dec Slowdown in job creation and unemployment reduction Evolution of employed, unemployed, & unemployment rate LFS Q3 2019 % change year-on-year; and % of active population In Q3, the unemployment rate stood at 13.9% of the active population, which is 5.9pp above the pre-crisis levels (Q3 2007) In October, according to Eurostat, the unemployment rate increased to 14.2% active population In December, the year-on-year correction of unemployment (-1.2%) has been the lowest since 2013. Job creation also slows down to 2%, which is 1.4pp below the peak reached in 2017 25.9 13.9 14.1 13.2 2.8 2.8 3.2 1.8 1.8 1.3 -14.4 -12.3 -3.4 0 5 10 15 20 25 30 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019* 2020* Unemployment rate (right axis) Employment creation (left axis) Reduction in unemployment (left axis) %year-on-yearchange %activepopulation -5.4 -8 -9.5 -7.8 -6.2 -1.2 2.6 3.2 3.1 3.4 3.1 2 -12 -10 -8 -6 -4 -2 0 2 4 0 5000000 10000000 15000000 20000000 25000000 2008 2014 2015 2016 2017 2018 2019 Unemployed (left axis) Affiliates (left axis) Unemployment year-on-year change (right axis) Affiliates year-on-year change (right axis) People %
- 46. 46 Evolution of theusage rate of temporary contracts % 4-month moving average Proliferation in the use of temporary employment contracts in the Public Administrations Currently, the total usage rate of temporary employment contracts in the Spanish economy stands at 26.7%, which is 4.7pp higher than the record low hit in Q4 2012 In Q3 2019, for the second consecutive quarter, the use of temporary employment contracts in the public sector exceeded that of the private sector, reversing the trend of the last 9 years In Spain, the public sector employs 3.2 million people, which is 16.3% of the total (19.9 million people) Temporary employment contracts in the public sector rise to 27.8% of the total employed, which is 1.4pp above that of the private sector (26.4%) Source: Círculo de Empresarios based on INE, 2020 18 20 22 24 26 28 30 32 34 36 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 2018Q1 2018Q3 2019Q1 2019Q3 Total Public Private
- 47. Spain maintains thesecond-highest unemployment rate in the EU 47 In October, the Spanish unemployment rate was 14.2%, 6.7pp above the for the Eurozone (7.5%) Unemployment rate UE 28, October 2019 % of the active population Unemployment rate — young people aged under 25 years October; % of active population aged under 25 years Source: Círculo de Empresarios based on Eurostat, 2020 16.7 14.2 9.7 8.5 7.5 6.5 6.3 4.8 3.8 3.5 3.1 32.5 32.8 27.8 19 18.3 15.6 15.5 14.4 12.2 11.4 5.8 7.3 0 10 20 30 40 50 60 2008 2014 2019
- 48. 48 Another year wastedin terms of fiscal consolidation Source: Círculo de Empresarios based on the Bank of Spain and the European Commission, 2020 The European Commission forecasts a public deficit of 2.3% of GDP for 2019 and a debt-to-GDP ratio of 96.7% Public debt and deficit % of GDP Public deficit by level of Public Administrations % of GDP In October, the Public Administration debt reached 1.19 trillion euros (96.7% of GDP) The Social Security deficit accounts for 57% of the total deficit of the Public Administrations -12 -10 -8 -6 -4 -2 0 2 4 0 20 40 60 80 100 120 140 2007 2011 2015 2019 Public debt (left axis) Public balance (right axis) Forecasts European Commission -1.2 -3 -1.3 -0.5 -1.7 -0.3 0.1 -0.5 0.50.5 0.7 -1.4 -1.2 -4.6 -2.5 2000 2008 2018 Central Government Autonomous Regions Local Authorities Social Security Total
- 49. 49Source: Círculo deEmpresarios based on the Ministry of Labour, Migrations & Social Security, the Bank of Spain, and the European Commission, 2020 Affiliates-to-pensioners ratio Since 2007, the affiliate-to-pensioner ratio in Spain has worsened, falling from 2.71 affiliates for each pensioner to 2.31 at present, with the forecast that in 2050 it will be at 1.26 (European Commission) ...affecting the sustainability of the Welfare State Forecast of pension expenditure evolution % of GDP The Bank of Spain forecasts that linking pensions to the CPI again could increase expenditure by approximately 2pp of GDP in 2030 and by more than 3pp in 2050 2.39 2.06 2.71 2.31 2 2,1 2,2 2,3 2,4 2,5 2,6 2,7 2,8 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Dec-19 Forecasts 2030:2 2050:1.26 9 10 11 12 13 14 15 16 17 Base scenario Budget 2018 and CPI adjusted
- 50. 50 Source: Círculo deEmpresarios based on Eurostat, 2020 Expenditure on social protection in the EU28 Top 5 countries with the highest share of social protection expenditure % of GDP Spain comes in the 12th position according to the social protection expenditure-to-GDP ratio EU 27.9% Social protection expenditure % of GDP Distribution of social protection expenditure in the EU28 and in Spain % of total expenditure on social protection 51.6 45.8 33.8 37.1 0% 20% 40% 60% 80% 100% Spain EU28 Old age and survivors Sickness/healthcare and disability Unemployment Family/children Housing and social exclusion 32.2 30.6 29.7 29.4 29.3 28.7 27.9 25.7 23.4 2012 2017 EU28 Spain
- 51. 51Source: Círculo deEmpresarios based on INE & Eurostat, 2020 The Spanish economy maintains favourable competitiveness via prices with the Eurozone In December, the price evolution recovered, with an annual CPI percent change rate of 0.8%, standing 0.5pp below the annual Eurozone average (1.3%) This evolution is mainly explained by the increase in fuel prices Price evolution % change year-on-year 0.8 1.3 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Spain CPI Spain core CPI* Eurozone CPI *GeneralIndex without unprocessedfoodandenergyproducts
- 52. Imports Capital goods Chemical goods Energygoods Exports Capital goods Food, beverages and tobacco Automobile 52 Balance of trade, January – October 2019 Change with respect to the same period of the previous year Source: Círculo de Empresarios based on the Ministry of Industry, Trade & Tourism, 2020 The external sector reduces its contribution to growth Exports ▲ 1.6% €242.5 bn Imports ▲ 1.5% €270.5 bn BALANCE = 0% - €28 bn Energy deficit ▼7.9% Sectorial distribution, January – October 2019 % of the total 20.3 16.5 15.3 21.2 16 13.7 Evolution of trade in goods % of GDP * Last 12 months, from October 2018 to October 2019 GDP based on the growth forecast for 2019 by The Bank of Spain = 2.2% and a CPI of 0.8% The lower dynamism of Spanish exports is mainly explained by the escalation of the trade war, the slowdown in the Eurozone, especially in Germany, and the impact of Brexit Geographical distribution, January – October 2019 % of the total 17.3 20.1 21.7 23 23.2 23.1 22.9 23.7 23.6 23.322.2 24.6 24.8 24.6 25.6 25.4 24.5 25.9 26.5 26 -4.9 -4.5 -3.1 -1.6 -2.4 -2.3 -1.6 -2.3 -2.8 -2.7 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* Exports Imports Balance Exports Imports Europe 71.5 59.4 EU 65.9 53.3 Germany 10.8 12.4 France 15 10.3 Italy 8 6.4 UK 6.9 3.6 America 10.8 10.6 Asia 9.1 21.2 China 2.3 9.1 Africa 6.5 8.4 Other 2.1 0.4
- 53. 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 2007 2008 20092010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2nd 1st 3rd Setback in FDI between January and September 2019 53Source: Círculo de Empresarios based on Datainvex, 2020 Between January and September 2019, gross flows of FDI received in Spain dropped by 61.4% year-on-year to €14.8 billion (1.6% of GDP) Spain FDI flows abroad plummeted by 58.7% to €8.1 billion (0.87% of GDP) and were mainly directed to the EU and Latin America (72.1% of total Spanish FDI), and only 10% to Asia and Africa 59% of the total FDI received by Spain comes from the EU28 Origin Destination Madrid 65.6% of the total Castile and Leon 11.6% of the total FDI flows received in Spain € millions ▼ 61.4% Catalonia 11.5% of the total
- 54. 90 M 82.8M 80 M 62.9 M 54 International tourist arrivals Source: Círculo de Empresarios based on Deloitte & INE, 2020 1,404 1.4 10% 1/10 GDP jobs trilliondollarsin touristspending +4%change 2017 millionsofinternational touristarrivals +6.1%change2017 Forecast 2019 +3% - 4% 82.8 millionsofinternational touristarrivals +1.1%change2017 89,751 milliondollarsin touristspending +5.5% change 2017Forecast 2019 11.7% 1.3/10 GDP jobs Spain 1st 2nd 3rd 4th Most visited countriesin the world World
- 55. Competitiveness of theSpanish economy — Tourism 55 Source: Círculo de Empresarios based on the World Economic Forum (WEF), 2020 Profile of Spain in the Travel & Tourism Competitiveness Index 2019 by the WEF Ranking and score 1º/140 countries Spain's main strengths are concentrated in transport and service infrastructures, natural resources and cultural resources and business travel tourism
- 56. Diversification of thecountries of origin of tourism Source: Círculo de Empresarios based on Frontur & INE, 2020 56 Distribution of tourist arrivals by countries of origin % of total arrivals 27.4 22.4 21 13.8 14 13.6 5.9 7 5 5.3 19.4 22.6 2.3 3.6 2.1 4.1 3 7.7 2001 2018 AMÉRICA EUROPA
- 57. Company formation slowsdown 57 Source: Círculo de Empresarios based on the Business demography statistics by the INE, 2020 Company formation, January-October 2019 Quantity and % change year-on-year Distribution of company formation by Autonomous Community Accumulated January-February % of national total; and % change year-on-year 79,515 new companies were formed in Spain between January and October 2019, which is 1% fewer than in the same period of the previous year -35 -30 -25 -20 -15 -10 -5 0 5 10 15 50000 55000 60000 65000 70000 75000 80000 85000 90000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Companies incorporated (left axis) % year-on-year change (right axis) nº % 23.1 19.3 16.5 11.7 4 3.6 3.3 3.3 3 2.9 2.6 2.1 1.2 1.2 0.9 0.7 0.5 0.5 3.5 -3.2 -1.3 -4.9 -6.5 -9.3 0.1 1.4 -2.9 -7.3 -4.2 -3.6 3 -4.6 -10 11.4 -15 -10 -5 0 5 10 15 0 5 10 15 20 25 New companies (% total) % year-on-year change (right axis)
- 58. Risk Premium ona downward trend 58Source: Círculo de Empresarios based on Reuters & Bloomberg, 2020 The risk premium is below 100 bp, and is moving away from the Italian risk premium, but is converging with that of Portugal Risk premiums from Spain, Portugal and Italy compared with the 10-year German bond bp Evolution of Spain’s rating 2010-2019 50 100 150 200 250 300 350 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Spain Italy Portugal Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14 Sep-14 Apr-15 Nov-15 Jun-16 Jan-17 Aug-17 Mar-18 Oct-18 May-19 Dec-19 Moody´s S&P FitchAaa AAA AA+ AA AA- Aa1 Aa2 Aa3 A+ A A- A1 A2 A3 BBB+ BBB BBB- Baa1 Baa2 Baa3 Rating
- 59. 80 85 90 95 100 105 110 115 120 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Oct-19 Nov-19 Dec-19 S&P 500 Eurostoxx50 IBEX 35 59Source: Círculo de Empresarios based on Reuters, 2020 Financial markets Evolution stock market January 2018=100 Since the beginning of the year, the difference in returns acquired from the IBEX 35 relative to the main indices (S&P 500 and the Eurostoxx 50) has widened Eurostoxx 50 +36.7% S&P500 +28.1% IBEX35 +12.2% Increase in share price since January 2019
- 60. Competitiveness of theSpanish economy Source: Círculo de Empresarios based on the World Economic Forum (WEF), 2020 60 Evolution of Spain's position in the ranking Position 28th 7th 19th 43rd 1st 37th34th 61st 26th 15th 34th 25th 23rd Institution Infrastructure ICT adoption Macroeconomic stability Health SkillsProduct market Labour market Financial system Market size Business dynamism Innovation capability Spain's position in each pillar of the ranking, 2019 141 countries Enabling environment Human capital Markets Innovation ecosystem 29th 26th 33rd 32nd 34th 26th 23rd 2007 2011 2015 2016 2017 2018 2019 Methodological change Spain still has weaknesses in: Labour market Macroeconomic stability Skills Business dynamism
- 61. www.circulodeempresarios.org The Quarterly Reportis a publication of the "Círculo de Empresarios" produced by its Department of Economics, which contains information and opinions from reliable sources. The "Círculo de Empresarios" does not guarantee its accuracy or take any responsibility for any errors or omissions contained therein. This document is intended for informational purposes only. Therefore, under no circumstances shall the "Círculo de Empresarios“ be liable for any uses made of the publication. The opinions and forecasts of the Department are subject to change without prior notice.