global and spanish economic outlook - february 2014 - bbva research
DESCRIPTION
The global economic cycle is improving and we expect a moderate acceleration in growth in 2014-15 supported by the developed economies Some economic policy uncertainties have been resolved but there are still risks, although not of a systemic nature, as was the case in the past For the first time since the beginning of the crisis the risks to our forecasts for the Spanish economy are to the upside. The recovery is being driven by exports, import substitution and the recovery in new lending. In addition, both financial tensions and fiscal consolidation are less intense The scope of the reforms needs to be expanded if they are to underpin a robust and sustained recovery, and reverse the jobs destroyed within a reasonable periodTRANSCRIPT
Global and Spanish Economic Outlook
February 2014
Global and Spanish Economic Outlook, February 2014
Main messages
The global economic cycle is improving and we expect a moderate acceleration in growth in 2014-15 supported by the developed economies
Some economic policy uncertainties have been resolved but there are still risks, although not of a systemic nature, as was the case in the past
For the first time since the beginning of the crisis the risks to our forecasts for the Spanish economy are to the upside. The recovery is being driven by exports, import substitution and the recovery in new lending. In addition, both financial tensions and fiscal consolidation are less intense
The scope of the reforms needs to be expanded if they are to underpin a robust and sustained recovery, and reverse the jobs destroyed within a reasonable period
Page 2
Global and Spanish Economic Outlook, February 2014
Index
Section 1
Global economy: a gradual acceleration supported by the developed economies Section 2
Spain: upside risks for the first time since the beginning of the crisis
Section 3
Commitment to the reforms is crucial to consolidate the improvement in the markets and increase potential growth
Page 3
Global and Spanish Economic Outlook, February 2014
Main Messages
Global GDP growth (%) Source: BBVA Research 1
2
The global expansion will continue in 2014-15 this time around with higher contributions from advanced economies
Growth risks are more balanced with upward risks in the US and downward risks that remain:
• the exit from QE and flows to emerging markets,
• the uneven recoveries and vulnerabilities in EM, and
• the eurozone
3.92.8
-0.4
5.24.0
3.22.9
3.6
-3
-2
-1
0
1
2
3
4
5
6
2008 2009 2010 2011 2012 2013
(e)
2014
(f)
2015
(f)Adv. Economies Emerging economies
Baseline Jan14 Baseline Oct-13
Page 4
Global and Spanish Economic Outlook, February 2014
The global momentum is improving
Manufacturing PMIs Source: BBVA Research based on Markit Economics
Industrial production (%,yoy) Source: CPB Netherlands
BBVA Financial Stress Index Source: BBVA Research
46
48
50
52
54
56
58
60
Sep
10
Feb
11
Ju
l 1
1
Dec
11
May 1
2
Oct
12
Mar
13
Aug
13
Jan 1
4
Global
Advanced economies
BBVA Eagles
-0.12
-0.08
-0.04
0.00
0.04
Jan-1
2M
ar-
12
May-1
2Ju
l-1
2Sep-1
2N
ov-1
2Ja
n-1
3M
ar-
13
May-1
3Ju
l-1
3Sep-1
3N
ov-1
3Ja
n-1
4M
ar-
14
-0.50
-0.10
0.30
0.70
1.10
Emerging Markets, left axis
Developed Markets, right axis
-2
0
2
4
6
8
10
12
14
16
May-1
0
Nov-1
0
May-1
1
Nov-1
1
May-1
2
Nov-1
2
May-1
3
Nov-1
3
Global Advanced Emerging
Page 5
Global and Spanish Economic Outlook, February 2014
FED’s forward guidance and ECB’s room of maneuver should anchor the global financial scenario
US: Fed funds futures and long term yields (%) Source: Bloomberg
EMU: Future of the EONIA rate and long term yields Source: Bloomberg and BBVA Research
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
1.10
1.30
1.50
1.70
1.90
2.10
Jan-1
3
Mar-
13
May-1
3
Jul-1
3
Sep
-13
No
v-1
3
Jan-1
4
10-Year Bund Yield at Constant Maturity (Avg, %)
EONIA Implied by the 12-Month Futures Price (% )
Tapering talks
September FOMC meeting
2 3
Tapering talks
September FOMC meeting
1 2
“Real” tapering
“Real” tapering
0.05
0.10
0.15
0.20
0.25
0.30
0.35
1.2
1.6
2.0
2.4
2.8
3.2
Jan-1
3
Mar-
13
May-1
3
Jul-1
3
Sep
-13
No
v-1
3
Jan-1
4
10-Year Treasury Note Yield at Constant Maturity (Avg, %)
Federal Funds Rate Implied by the 12-Month Futures Price (%)
3 1
Page 6
Global and Spanish Economic Outlook, February 2014
The tightening of liquidity conditions is impacting on EM; anyway, differentiation remains
EM: economic cycle and financial tensions Source: BBVA Research
BRACHL
MEX
TUR
CHI
IND
KOR
MASYA
PHI
TWN
THA
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
-10.0 0.0 10.0 20.0 30.0
Fundin
g G
ap (
CA
+FD
I, a
vg.2
Q´1
3-2
Q'1
2,
% G
DP)
FX depreciation (Febr-14 vs. avg.Dec'12, %)
EM: exposure to short-term capital flows and exchange rate vs USD Source: BBVA Research
-0.12
-0.09
-0.06
-0.03
0.00
0.03
0.06
0.0948
49
50
51
52
53
54
May-1
1
Sep
-11
Jan-1
2
May-1
2
Sep
-12
Jan-1
3
May-1
3
Sep
-13
Jan-1
4
BBVA EAGLEs PMI
BBVA Research Emerging Markets Financial Tension Index,right axis
Financial tensions stop their
Cycle confidence stops its
improvement
Page 7
Global and Spanish Economic Outlook, February 2014
US: the sustained recovery and the fiscal agreement bias upwards our scenario for the US
US: GDP growth (y/y) Source: BBVA Research, BEA
US: private-sector payroll growth (monthly change, 3-month average, thousands) Source: Bloomberg
0
50
100
150
200
250
300
0
50
100
150
200
250
300
Apr-
10
Sep
-10
Feb
-11
Jul-1
1
Dec-
11
May-1
2
Oct
-12
Mar-
13
Aug
-13
Jan-1
4
QE2 QE3Twist
2.8
2.5
1.8
2.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2012 2013 2014 2015
Baseline Jan-2014 Baseline Oct-2013
Page 8
Global and Spanish Economic Outlook, February 2014
China: Growth momentum supported by recent stimulus measures and improving external demand
The “to-do” list of the “Third Plenum” meets our view about the needed reforms; lack of
details introduces uncertainty
The objective of the Communist Party of China is to give markets a “decisive” role as mechanism of allocating resources
Efforts to curtail financial fragilities could lead to somewhat lower momentum in 2014H2 as the traditional engines of growth cannot be
used “extensively” any more
China: GDP Growth (%, y-o-y) Source: BBVA Research
7.77.7
7.67.5
6.0
6.5
7.0
7.5
8.0
8.5
2012 2013 2014 2015
Baseline Jan-2014 Baseline Oct-2013
Page 9
Global and Spanish Economic Outlook, February 2014
The eurozone: positive growth with an increasing role of domestic demand
Exports will remain as the main driver of growth in both 2013 and 2014
Domestic demand has weighed on growth in 2013, but will contribute to the recovery in
2014-15
Overall: lower financial tensions, higher global growth, lower fiscal drag, ECB’s loosening bias
and Banking Union
Eurozone: GDP growth (y/y) Source: BBVA Research
-0.6
1.1
-0.4
1.9
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2012 2013 2014 2015
Baseline Jan-2014 Baseline Oct-2013
Page 10
Global and Spanish Economic Outlook, February 2014
In the eurozone, the “double-dip” in the period 2008-13 and weak money growth have prompted inflation to fall
EZ: core inflation and demand pressure, % y/y and % potential GDP Source: Eurostat, Haver and BBVA Research
EZ: core inflation and M3, % y/y
Source: Eurostat , Haver and BBVA Research
0.5
0.8
1.1
1.4
1.7
2.0
2.3
2.6
2.9
3.2
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
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
Output gap, 6-Month ahead (LHS) Core CPI y/y (RHS)
0.5
0.8
1.1
1.4
1.7
2.0
2.3
2.6
2.9
3.2
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
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
M3, % y/y (LHS) Core CPI y/y (RHS)
Page 11
Global and Spanish Economic Outlook, February 2014
In the most likely scenario, the risk of deflation is low; yet it increases under more extreme situations
Baseline scenario
Inflation Prob. of deflation
Monetary restriction (M3 growth = 0.9%)
1.0% 7.5%
0.8% 14%
Monetary restriction + shock (M3 growth = 0.9%; growth <-1)
0.4% 34%
… + Unanchored expectations (M3 growth = 0.9%; growth <-1)
0.3% 47%
EZ: Distribution of probability of inflation (average 2014) Source BBVA Research
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0
Base scenario
Monetary-restriction scenario
Monetary restriction + negative schock
Lost of anchored inflation expectations
Page 12
Expansión económica con diversidad de ritmos y de riesgos
Interconnected risk events with potential to impact on global growth
(*) Heterogeneous developments among countries
QE’s exit and disruptive effects of portfolio rebalancing
Adjustment in China and other EM (*) The Eurozone
Banking union, political instability and deflation risk
Page 13
Global and Spanish Economic Outlook, February 2014
In sum, economic growth at diverse paces and with different risks
Growth cycle strengthens, mainly in advanced economies and in some emerging
economies. Economic policy remains as a supportive factor for growth in 2014-15
To reinforce the baseline scenario, policy-makers have to tackle domestic
vulnerabilities: banking issues and disinflation risks in the Eurozone, financial vulnerabilities in
China, and private domestic demand in emerging economies
The impact of FED’s tapering over global funding conditions, in the US and beyond,
remains as a factor of uncertainty
GDP growth (%yoy) Source: BBVA Research and IMF
3.22.9
3.63.9
2.8
1.8
2.5 2.5
-0.6-0.4
1.11.9
5.0 4.85.2 5.4
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
20
12
20
13
20
14
20
15
20
12
20
13
20
14
20
15
20
12
20
13
20
14
20
15
20
12
20
13
20
14
20
15
World US EMU BBVA-EAGLES
Baseline Nov-13
Page 14
Global and Spanish Economic Outlook, February 2014
Index
Section 1
Global economy: a gradual acceleration supported by the developed economies
Section 2
Spain: upside risks for the first time since the beginning of the crisis Section 3
Commitment to the reforms is crucial to consolidate the improvement in the markets and increase potential growth
Page 15
Global and Spanish Economic Outlook, February 2014
The recovery of the Spanish economy is confirmed …
Spain: GDP growth and MICA-BBVA forecasts (% QoQ) Source: BBVA Research based on INE
After three years in recession, domestic demand started to make a positive contribution
to growth again in the second half of 2013…
… as a consequence of improved fundamentals, less restrictive fiscal policy, reduced
uncertainty and increased import substitution
The available information points to growth of at least 0.4% in 1Q14 -1.5
-1.0
-0.5
0.0
0.5
1.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14 (
f)
CI at 20%
CI at 40%
CI at 60%
Data (f: MICA-BBVA Research forecast)
Page 16
Global and Spanish Economic Outlook, February 2014
Public sector: breakdown of the public deficit excluding aid to the financial sector (% GDP) Source: BBVA Research based on MINHAP
… and, in spite of the uncertainty regarding the deficit in 2013 …
The significant fiscal consolidation efforts in 2012 and 2013 …
… have resulted in containment of the public deficit at around 7.0% of GDP
The wider the deviation from the target deficit for 2013, the greater the effort that will have
to be made in 2014
9.1
3.0
5.2
6.8
1.8 1.6
7.0
-0.3 0.9
5.8
-0.7
0.0
5.1
0
2
4
6
8
10
12
14
Defici
t2
01
1
Pass
ive f
isca
l polic
y
Fis
cal eff
ort
Defici
t 2
01
2
Pass
ive f
isca
l polic
y
Fis
cal eff
ort
Defici
t 2
01
3
Pass
ive f
isca
l polic
y
Fis
cal eff
ort
Defici
t 2
01
4
Pass
ive f
isca
l polic
y
Fis
cal eff
ort
Defici
t 2
01
5
2012 2013 (e ) 2014 (f) 2015 (f)
Page 17
Global and Spanish Economic Outlook, February 2014
… the risks are to the upside for the first time
Spain: GDP growth forecasts, 2014 (% YoY) Source: BBVA Research based on Consensus Forecast Inc.
Economic policy decisions have eliminated the risk scenarios
The differential performance of the Spanish economy confirms this improvement in the
trend
If these trends are confirmed, growth could be even stronger than we are forecasting
0
5
10
15
20
25
30
35
40
45
50
(< -1,2) (-1,2;-0,8) (-0,8;-0,4) (-0,4;0) (0;0,4) (0,4;0,8) (0,8;1,2) (>1,2)
Rela
tive f
requency
GDP Growth forecast
July-2013 (mean: 0,2%) Feb-2013 (mean:0,3%)
Jan-2014 (mean: 0.7%)
BBVA Research (Jan-14)
Page 18
Global and Spanish Economic Outlook, February 2014
Upside risks: 1. Exports will continue to expand
Spain: growth and breakdown of goods exports by broad geographical area Source: BBVA Research based on Datacomex
We expect the recovery to continue driven by the increase in exports
The deceleration in exports is a temporary phenomenon and will reverse in a scenario of
stronger global growth
The slowing momentum in EMs has been offset by the recovery in the EMU
0
10
20
30
40
50
60
-24
-18
-12
-6
0
6
12
EMU EAGLEs
Nominal growth, average % yoy 1Q13 (LHS)
Nominal growthl, Oct-Nov 2013 average % yoy (LHS)
Share over total exports (%, RHS)
Page 19
Global and Spanish Economic Outlook, February 2014
Upside risks: 1. Exports will continue to expand
Regions: average annual growth in exports of goods due to diversification (2009-2012) (%, Spain: weighted average) Source: BBVA Research Export growth is based on improvements in
competitiveness, and above all, on diversification
On average, 75% of the growth in exports during the crisis was due to product and
geographical diversification
This export diversification prevented even greater negative GDP growth
Box 3
-5
0
5
10
15
20
GA
L
C&
L
BA
L
AR
A
EX
T
RIO
SP
A
NA
V
VA
L
CLM BC
CA
T
MA
D
CA
NT
AST
AN
D
MU
R
CA
N
Geographical diversification Product diversification
Combined effect
Page 20
Global and Spanish Economic Outlook, February 2014
Upside risks 2. An increase in savings and financial wealth
Spain: net real household financial wealth (Deflated by the private consumption deflator; seasonally adjusted data) Source: BBVA Research based on Bank of Spain and INE
The increase in corporate and household savings has been an essential part of the
recoveries in Spain …
… that has helped in the deleveraging process and in the improvement in the financial
situation of the private sector …
… and these, together with the stabilisation and improvement in the value of wealth, has
driven an increase in consumption and investment
600
700
800
900
1000
Mar-
08
Jun-0
8
Sep
-08
Dec-
08
Mar-
09
Jun-0
9
Sep
-09
Dec-
09
Mar-
10
Jun-1
0
Sep
-10
Dec-
10
Mar-
11
Jun-1
1
Sep
-11
Dec-
11
Mar-
12
Jun-1
2
Sep
-12
Dec-
12
Mar-
13
Jun-1
3
Sep
-13
Real net financial wealth (billion €)
2Q12-3Q13: +24.8%
Page 21
Global and Spanish Economic Outlook, February 2014
Spain: 10Y bond yield (Difference vs. our November 2013 forecast in bp) Source: BBVA Research
Upside risks 3. More certainty and fewer financial tensions
-128
-126
-124
-122
-120
-118
-116
-114
-112
-110
-108
2014 2015
Improved international perceptions of the Spanish economy have allowed Spain to reduce its dependence on ECB funding
Reduced financial tensions are reflected in the economy with a lag of 6-9 months
A permanent 100bp drop in sovereign interest rates implies up to one percentage point more
growth for the economy
Page 22
Global and Spanish Economic Outlook, February 2014
Upside risks 4. More dynamic investment
Spain: exports and investment in equipment and machinery (2008=100) Source: BBVA Research based on INE
The recovery we expect in the EMU and the continuing export growth …
… should translate into an increase in private-sector investment
In fact, the investment in equipment and machinery had grown 6.3% by 4Q13
60
70
80
90
100
110
120
130
140
Dec-
99
Sep
-00
Jun-0
1
Mar-
02
Dec-
02
Sep
-03
Jun-0
4
Mar-
05
Dec-
05
Sep
-06
Jun-0
7
Mar-
08
Dec-
08
Sep
-09
Jun-1
0
Mar-
11
Dec-
11
Sep
-12
Jun-1
3
Mar-
14
Dec-
14
Sep
-15
Goods and services exports
Page 23
Global and Spanish Economic Outlook, February 2014
Upside risks 5. Improvement in new lending flows
Spain: new lending and credit to households, NPISH and non-financial entities Source: BBVA Research based on Bank of Spain (February 2014)
The Spanish economy is going through an evitable deleveraging process …
… that is compatible with new lending for financially viable projects
There has been a turning point and an improvement in corporate lending, which we
expect to consolidate in 1H14 -40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Yoy %
change
Total Tendencia Tendencia corregidaTotal Trend Corrected trend
Page 24
Global and Spanish Economic Outlook, February 2014
Spain: LFS employment (Variation in annual average, %) Source: BBVA Research based on INE
Upside risks 6. Changes in the labour market
Net job-creation has started sooner than we expected, partly as a reflection of wage
moderation
Had labour institutions been in better shape at the beginning of the crisis, millions of job
losses could have been avoided
In 2014 employment will be created for the first time since the beginning of the crisis
-3.1
0.0
1.1
-3.1
0.4
1.0
-3,5
-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2013 2014 2015
Spain Outlook 4Q13 Spain Outlook 1Q14
Page 25
Global and Spanish Economic Outlook, February 2014
Spain: GDP growth by region (% YoY) Source: BBVA Research
In 2014 all the regions will return to positive growth
The progress made in correcting the imbalances and the exposure to external
demand …
… are the key to explaining the difference in the speed at which the different regions will
start growing
2014: the start of the recovery
AND
ARA
AST
BAL
CAN
CNTC&L
CLM
CAT
EXT
GAL
MAD
MUR NAV
BASQ
RIO
VAL
SPA
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8
Gro
wth
in 2
01
5
Growth in 2014
Page 26
Global and Spanish Economic Outlook, February 2014
Index Section 1
Global economy: a gradual acceleration supported by the developed economies
Section 2
Spain: upside risks for the first time since the beginning of the crisis
Section 3
Commitment to the reforms is crucial to consolidate the improvement in the markets and increase potential growth
Page 27
Global and Spanish Economic Outlook, February 2014
The need to broaden the scope of the reform agenda
GDP growth and job-creation Source: BBVA Research and Lebergott (1964)
Assumptions for the USA and the EMU are consistent with BBVA Research´s scenario. The Spanish scenario has been built assuming both that producvity per worker rises 0,6% (as it was the case between 1992 and 2007) and that GDP grows on average 2,5.
The recovery in employment will be very sensitive to economic growth
The objective should be to introduce the necessary reforms to increase economic growth to close to or more than 2.5%
Unless this happens, job-creation will be limited and the recovery slow
80
85
90
95
100
105
Pico 2 4 6 8 10 12 14 16 18años
Level of
em
plo
ym
ent
at
the b
egin
nin
g o
f th
e c
risi
s =1
00
Spain, 2007-2025 EMU, 2007-2017 USA., 2007-2014
USA 1929-1940
Peak years
Page 28
Global and Spanish Economic Outlook, February 2014
The ECB must ensure it achieves its inflation target
Spain and EMU: inflation trend (% YoY) Source: BBVA Research based on INE y Eurostat
The ECB needs to converge with its inflation target more quickly, which would help Spain
deleverage …
… while the Spanish economy needs to continue to improve competitiveness
The reforms that improve competitiveness and facilitate internal devaluation in Spain need to
continue
Box 1
-1,0
0,0
1,0
2,0
3,0
4,0
dic
-02
jun-0
3d
ic-0
3ju
n-0
4d
ic-0
4ju
n-0
5d
ic-0
5ju
n-0
6d
ic-0
6ju
n-0
7d
ic-0
7ju
n-0
8d
ic-0
8ju
n-0
9d
ic-0
9ju
n-1
0d
ic-1
0ju
n-1
1d
ic-1
1ju
n-1
2d
ic-1
2ju
n-1
3d
ic-1
3
Spain (Trimmed mean) Europe (core CPI)
Page 29
Global and Spanish Economic Outlook, February 2014
Spain: unemployment and public deficit Source: BBVA Research based on INE and MINHAP
An efficient tax system and fiscal sustainability
Box 2
Tax revenues dropped sharply in Spain as a consequence of the recession …
… and the fiscal consolidation process requires sufficient resources to ensure that Spain’s
finances remain in good health…
… but with a structure that drives economic growth and job-creation, two key factors for
reducing the deficit
80
81
8283
84
85
86
878889
9091 92
9394
95
96
97
98
990001 020304
05
0607
08
09
1011
12 13
-12
-10
-8
-6
-4
-2
0
2
4
7 9 11 13 15 17 19 21 23 25 27
Budget deficit (%
GD
P)
Unemployment rate (%)
14%(2006)
18%(2013)
-1.8%
Page 30
Global and Spanish Economic Outlook, February 2014
The need to broaden the scope of the reform agenda
1. To continue the deleveraging and improvement in the finances of the Spanish economy: finalising the restructuring of the financial sector and
attracting foreign direct investment
3. Reforms to improve competitiveness, increase the attraction of Spain internationally in terms of physical, human and technological capital
4. To continue with the reforms that reduce the duality in the labour market, improve the way it functions and increase employability
-> more and better-quality jobs
2. Public-sector reform, fiscal consolidation and long-term sustainability of public finances, with an efficient tax system that incentivises growth and job-
creation
Page 31
Global and Spanish Economic Outlook
February 2014
Global and Spanish Economic Outlook, February 2014
Macroeconomic scenario
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Global and Spanish Economic Outlook, February 2014
Current disinflation in some advanced economies is comparable to the Great Recession episode
Core inflation in some advanced economies (% y/y)
Source: Haver and BBVA Research
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
Jan-0
8
Jul-0
8
Jan-0
9
Jul-0
9
Jan-1
0
Jul-1
0
Jan-1
1
Jul-1
1
Jan-1
2
Jul-1
2
Jan-1
3
Jul-1
3
Jan-1
4US Japan Eurozone UK
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