presentation "europe outlook. first quarter 2015"
TRANSCRIPT
February 2015
Europe Outlook
Europe Outlook, February 2015
Section 1
Moderate global growth with increasing divergences ahead
Section 2
Eurozone drivers: oil and euro depreciation offset the downside risks
Section 3
Forecast: more solid growth expected for 2015
Section 4
The challenges continue: low potential, large imbalances
Annex
Country breakdown
Index
Page 2
Europe Outlook, February 2015
World economy: where are we heading to?
Página 3
What happened as of late?
Financial tensions increase but with a significant heterogeneity
Growing concern about the economic impact of geopolitical events (Russia, Middle East)
GDP has grown faster than in the first half of 2014, but with major differences between countries
Politics into the spotlight in 2015, especially in Europe
Stronger global growth driven by oil, but with large differences by area
Divergence in monetary policies: relaxation in Europe, China and Japan, and gradual tightening in the US
What do we expect in 2015-16?
Low inflation is generalized, driven by falling oil prices
Change in oil price is a big positive shock
Lower inflation in all areas, reaching too low levels in some areas
Markets differ depending on the exposure to global shocks and the fundamentals of each country
Europe Outlook, February 2015
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
2016
2.8 2.2
2.7
5.2 6.6
6.0
1.8
3.4
2.4
2015
2.9 1.3 5.0 7.0
6.2 1.5
3.5
0.6
2.7
Source: BBVA Research
Global
3.6 3.8
Emerging
Asia:
China Hong Kong India Indonesia S. Korea Malaysia Philippines Singapore Taiwan Thailand Vietnam
World growth: moderate and uneven acceleration
Europe Outlook, February 2015
US: higher growth and lower inflation due to the oil price fall, with little domestic risk
Page 5
US: GDP growth (YoY) Source: BBVA Research, BEA
2.2
2.4
2.92.8
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2013 2014 2015 2016
Jan-15 Oct-14
US: Fed Funds (%) Source: BBVA Research
Timeline of exit
strategy
3Q15
First FFR Hike
1H16
Policy Normalisation Let securities mature/sales
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
Jan-1
5
Apr-
15
Jul-1
5
Oct-
15
Jan-1
6
Apr-
16
Jul-1
6
Oct-
16
07 Oct. Before Oct Minutes 18 Dec. After Dec Minutes
Latest BBVA forecast
(Bias to the
upside)
Europe Outlook, February 2015
EMs Response to the
Fed’s rate hikes
Source: BBVA Research
China Hard landing
Europe • Stagnation
• Lack of
consensus on
reforms
• Greece
• Russia-Ukraine
Global Destabilisation of
some countries as
a result of low oil
prices
Risks are still tilted to the downside
Developed
countries Indebtedness
Europe Outlook, February 2015
Section 1
Moderate global growth with increasing divergences ahead Section 2
Eurozone drivers: oil and ECB offset the downside risks Section 3
Forecast: more solid growth expected for 2015 Section 4
The challenges continue: low potential, large imbalances Annex
Country breakdown
Index
Page 7
Europe Outlook, February 2015
1) Oil price shock is positive as it is mostly supply-driven
Page 8
3) Exchange rate: Euro depreciation will boost exports
4) Juncker’s Plan: sizeable impact if well implemented
2) Monetary policy: large and open-ended QE programme
5) Neutral fiscal policy
6) External environment: Slowdown in Russia and China
What’s new in Europe?
Europe Outlook, February 2015
0.2-0.4%
The reduction in the cost of crude will boost eurozone GDP growth in 2015 and 2016
Oil price (Brent, USD/b) Source: BBVA Research
More than 30%
in 2015-16
50
60
70
80
90
100
110
120
130
Ma
r-1
0
Au
g-1
0
Ja
n-1
1
Ju
n-1
1
No
v-1
1
Apr-
12
Se
p-1
2
Fe
b-1
3
Ju
l-1
3
De
c-1
3
Ma
y-1
4
Oct-
14
Ma
r-1
5
Au
g-1
5
Ja
n-1
6
Ju
n-1
6
No
v-1
6
Ap
r-1
7
Se
p-1
7
Fe
b-1
8
Ju
l-1
8
De
c-1
8
Actual F'cast MCOct14 F'cast December14
1) The fall in oil prices is positive for growth
Europe Outlook, February 2015
2) ECB’s response to deflation risks: a wider-than-
expected QE
Página 10
Decision On January 22 the ECB finally announced an extended asset purchase programme, including public and private securities (QE)
• Maturities longer than expected: 2-30 years • Pari-passu • Purchases according to capital key • Some limits: 33% of issuer’s exposure and 25% of each issue
Format
Further details
Overall, the program could exceed €1,100 bn of public and private debt (of which around €800 bn could be sovereign bonds) and ECB´s balance sheet will reach € 3.3 bn in Dec 2016
Open-ended: monthly purchases of €60 bn of public and private debt since March 2015 until September 2016 or until inflation follows a proper path
Amount
However, risk sharing of sovereign bond purchases will be very limited (8%)
Europe Outlook, February 2015
The ECB’s balance sheet will expand by at least EUR1,100 Bn
Page 11
ECB balance sheet and projections (€bn) Source BBVA Research and Bloomberg
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Jul-12
Jan-1
3
Jul-13
Jan-1
4
Jul-14
Jan-1
5
Jul-15
Jan-1
6
Jul-16
3) ECB’s QE has led to euro depreciation
Euro will be 7% more depreciated than expected in 2015
1,00
1,05
1,10
1,15
1,20
1,25
1,30
1,35
1,40
1,45
Jan-1
4
Ma
r-1
4
Ma
y-14
Jul-1
4
Sep
-14
Nov-1
4
Jan-1
5
Ma
r-1
5
Ma
y-15
Jul-1
5
Sep
-15
Nov-1
5
Jan-1
6
Ma
r-1
6
Ma
y-16
Jul-1
6
Sep
-16
Nov-1
6
EURUSD exchange rate (%)
Source BBVA Research and Bloomberg
Europe Outlook, February 2015
0.4% GDP in eurozone
7%
USD/EUR
Compared to 3 months ago EUR against USD
1.1 2015 average
3) ECB’s QE has led to euro depreciation
Europe Outlook, February 2015
4) Juncker’s Plan: Impact of up to 0.5% per year in 2015-17 if sucessful
Institutions
Quantities, sectors
Guarantees, no new debt
European Fund for Strategic Investment (EFSI): EC, EIB & countries
Positive as EIB is too conservative choosing projects
Main features Evaluation
Majority control by EC
Leverage 1/15: EUR21bn onto EUR315 bn Starting mid-2015 3 years
Infrastructure projects (EUR240bn) SMEs (EUR75 bn)
Voluntary additional contributions by countries not computed as deficit
Possible way to stimulate fiscal policy through the back door
No “fresh money”, no fiscal stimulus
Likely leverage as liquidity is high, in line with other EIB projects
Key is first loss by EFSI
Need to focus on risky projects to maximize net investment
Page 13
Europe Outlook, February 2015
-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
5) Fiscal policy more favourable than in previous years
Structural deficit adjustment 2010-2015 (% GDP) Source: BBVA Research and IMF
Page 14
Small consolidation required in 2014 and 2015 as compared to previous years
European Commission more careful not to force pro-cyclical adjustments
Europe Outlook, February 2015
6) Russia: Impact through trade channel, but also on confidence and investment
Russia: Large downward revision in GDP forecast
Impact through trade channel (bilateral) seems to be limited…
Page 15
Russia: annual GDP growth forecast revision (%) Source: FocusEconomics
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2014 2015 2016
Oct-14 Feb-15
…but total effect (via other trading partners, financial channels…) could be up to -0.6pp
Europe Outlook, February 2015
-0.5
-0.4
-0.3
-0.2
-0.1
0.0
0.1
Average drop innext 3 years
Cumulated Average drop innext 3 years
Cumulated
PERMANENT lower China GDP growth(-1.0pp)
TRANSITORY lower China GDP growth(-1.0pp)
6) China: downward revision of growth in 2016 (-0.4pp)
Page 16
Impact of lower growth in China on EMU GDP growth (pp) Source: BBVA Research
…without too much policy stimulus needed, which would increase risks (financial
fragilities and the real estate adjustment)
China: Oil price fall increases the room to manoeuvre to ensure a soft landing…
Limited impact on the eurozone (around -0.1pp). But foreign demand
remains key to underpin investment recovery
Europe Outlook, February 2015
Section 1
Moderate global growth with increasing divergences ahead Section 2
Eurozone drivers: oil and ECB offset the downside risks Section 3
Forecast: more solid growth expected for 2015 Section 4
The challenges continue: low potential, large imbalances Annex
Country breakdown
Index
Page 17
Europe Outlook, February 2015
Confidence recovery is finally supporting domestic demand, especially consumption
Significant fall in confidence over the summer across countries and sectors, but
recovering at the beginning of Q1
Improving hard data
The eurozone’s economy grew at an annualised rate of just over 1% in 4Q14
Page 18
-30
-25
-20
-15
-10
-5
0
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Q1-1
1
Q2-1
1
Q3-1
1
Q4-1
1
Q1-1
2
Q2-1
2
Q3-1
2
Q4-1
2
Q1-1
3
Q2-1
3
Q3-1
3
Q4-1
3
Q1-1
4
Q2-1
4
Q3-1
4
Q4-1
4
Q1-1
5
Retail sales YoY ESI consumer confidence (rhs)
Consumer confidence and retail sales Source: Eurostat, EC and BBVA Research
Europe Outlook, February 2015
Exports are recovering supported by a lower euro and stronger demand from advanced economies
UEM: Exports by destination (%QoQ) Source: BBVA Research
Page 19
The depreciation of the euro has boosted
eurozone exports…
… which have been accelerating by the end of
2014…
…especially those bound for the US and the
rest of Europe
-2
-1
0
1
2
3
4
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
Other European Union Other EuropeanAfrica AmericaAsia OceaniaRest Total
Europe Outlook, February 2015
The recovery is evolving as expected, with more growth in Germany and Spain than France or Italy
MICA-BBVA GDP short term model (% QoQ) Sources: Haver and BBVA Research
Page 20
GDP growth (QoQ)
2Q14 3Q14 4Q14 1Q15 (f)
Eurozone 0,1% 0,2% 0,3% 0,3%
Germany -0,1% 0,1% 0,7% 0,5%
France -0,1% 0,3% 0,1% 0,3%
Italy -0,2% -0,1% 0,0% 0,3%
Spain 0,5% 0,5% 0,7% 0,9%
Portugal 0,3% 0,3% 0,5% 0,4% -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
Europe Outlook, February 2015
-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 between 1% and 1.5% in 2015
EMU: annual GDP growth contributions (pp) Sources: Eurostat and BBVA Research
2013
2014
(f)
2015
(f)
2016
(f)
Activity
REAL GDP (% YoY) -0,4 0,8 1,3 2,2
Private consumption -0,6 0,9 1,4 1,7
Public consumption 0,2 0,9 0,5 0,9
Investment -2,4 0,7 0,9 4,6
Domestic demand (contr. %) -0,9 0,7 1,1 2,0
Exports 2,1 3,7 4,8 4,9
Imports 1,2 3,7 4,8 5,0
Net exports (contr. %) 0,4 0,2 0,2 0,1
Current account balance(% GDP) 2,4 2,5 2,7 2,7
Public deficit (% GDP) -2,9 -2,7 -2,5 -2,0
CPI, % average 1,4 0,4 0,1 1,0
Page 21
Europe Outlook, February 2015
GDP forecast by country (%) Sources: Eurostat and BBVA Research
Across countries, Germany will continue to lead France and Italy
• Germany: 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
• Exports will be the main driver of growth
Page 22
-0.4
0.8
1.3
2.2
0.2
1.5 1.4
2.2
0.4 0.4
1.0
1.8
-1.9
-0.4
0.6
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 (Jan-15) Last projection (Oct-14)
Europe Outlook, February 2015
Headline inflation: significant downward revision driven by the fall in oil prices
Headline and core inflation (% YoY) Source: BBVA Research
Page 23
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
20
08
-2
20
08
-4
20
09
-2
20
09
-4
20
10
-2
20
10
-4
20
11
-2
20
11
-4
20
12
-2
20
12
-4
20
13
-2
20
13
-4
20
14
-2
20
14
-4
20
15
-2
20
15
-4
20
16
-2
20
16
-4
Headline Core
The impact of a 10% shock in oil prices is
0.2%/0.3% lower inflation, and less than
0.1% in core inflation
Negative inflation expected over the first
half of 2015, and core inflation is still very
low (below 1%)
The recovery in 2015, the end of falling oil
prices and the ECB’s QE will help to redress
inflation expectations in the medium term
Europe Outlook, February 2015
24
Europe faces important challenges and risks
Short term
Medium and long term
Geopolitical risks
Several elections in 2015-16, risk of populism
Risk of stagnation and deflation
Low potential growth
Further fiscal and economic integration
Lack of consensus on reforms
Europe Outlook, February 2015
Section 1
Moderate global growth with increasing divergences ahead Section 2
Eurozone drivers: oil and ECB offset the downside risks Section 3
Forecast: more solid growth expected for 2015 Section 4
The challenges continue: low potential, large imbalances Annex
Country breakdown
Index
Page 25
Europe Outlook, February 2015
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
Page 26
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 Participation rate
Population 15-65 Structural unemployment
Productivity
EMU
US
Europe Outlook, February 2015
Where do we stand after the crisis?
GDP Note: Q1-2008=100
Sources: Eurostat, Haver and BBVA Research
Page 27
109,6
103,9
101,4
98,1
96,3
94,293,1
90,5
87,5
90,0
92,5
95,0
97,5
100,0
102,5
105,0
107,5
110,0
Ma
r-0
8
Jun-0
8
Sep
-08
Dec-0
8
Ma
r-0
9
Jun-0
9
Sep
-09
Dec-0
9
Ma
r-1
0
Jun-1
0
Sep
-10
Dec-1
0
Ma
r-1
1
Jun-1
1
Sep
-11
Dec-1
1
Ma
r-1
2
Jun-1
2
Sep
-12
Dec-1
2
Ma
r-1
3
Jun-1
3
Sep
-13
Dec-1
3
Ma
r-1
4
Jun-1
4
Sep
-14
Dec-1
4
Eurozone Germany France Italy
Spain USA Portugal Ireland
Europe Outlook, February 2015
Heat map of macroeconomic imbalances
Excluding aid to the financial sector **Data for France: 4Q-2012 Source: Eurostat, BCE, Haver and BBVA Research Page 28
Public DebtPublic 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 % of GDP % of GDP 3-yr % chg. 3-yr % chg. % of GDP % of GDP
Q4-2013 2013 Latest 2013 Q4-2013** Sep. 2013 Latest Latest Latest
Eurozone 92,7 -2,8 11,8 2,4 -12,2 1,0 3,9 63,9 81,5
GER 78,4 0,0 5,1 7,5 48,3 0,1 6,1 58,2 48,5
FRA 93,5 -4,3 10,4 -1,4 -21,2 -0,7 5,2 56,7 84,0
AUT 74,5 -0,9 4,9 2,7 3,4 2,2 7,3 54,5 92,9
BEL 101,5 -2,8 8,5 -1,6 44,0 0,5 8,6 56,5 92,4
NED 73,5 -2,5 7,2 10,4 53,0 1,5 6,4 127,9 91,5
FIN 57,0 -2,1 8,5 -1,1 15,8 1,9 8,5 65,4 92,5
ITA 132,6 -3,1 12,7 1,0 -30,0 2,0 4,3 45,3 81,0
SPA 93,9 -6,6 25,3 0,8 -98,2 0,8 -5,3 81,3 114,0
POR 129,0 -4,5 15,2 0,5 -118,7 0,2 -1,3 86,8 130,8
IRE 123,7 -6,7 11,8 6,6 -104,9 -2,4 -3,4 105,1 201,3
GRC 175,1 -2,1 26,5 0,7 -119,0 -3,9 -11,1 64,5 64,8
DEN 44,5 -0,9 6,5 7,3 39,6 -1,4 3,8 139,2 97,9
SWE 40,6 -1,1 8,1 6,2 -4,8 3,1 6,2 83,4 121,2
U.K. 90,6 -5,7 6,7 -4,4 -1,3 3,9 6,2 93,1 83,8Colour 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
Europe Outlook, February 2015
Unit labour costs adjustment, 2009-2013 (%) Sources: Haver y BBVA Research
Unit labor costs have adjusted in the periphery
In some countries this was due to increased productivity caused by the decline in
employment
Wage moderation has also played an important
role, especially in comparison with the core countries
Page 29
-20
-15
-10
-5
0
5
10
15
Gre
ece
Irela
nd
Sp
ain
Port
ug
al
EA
17
De
nm
ark
Ge
rma
ny
Ita
ly
Fra
nce
Ne
therl
and
s
Un
ite
d K
ing
dom
Au
str
ia
Fin
lan
d
Be
lgiu
m
Labour Productivity (Sign switched) Wages Unit Labour Cost
Europe Outlook, February 2015
Current account (% GDP) Sources: Eurostat and BBVA Research
Current account deficits have disappeared very fast
Current account (% GDP) Sources: Eurostat and BBVA Research
Most countries in the euro zone are now in surplus (except for France)
Part of the adjustment is due to the recession (less imports), but exports have also played an
important role
Page 30
-15,0
-10,0
-5,0
0,0
5,0
10,0
15,0
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
Germany France ItalySpain Portugal Netherlands
CORE PERIPHERY
-20
-10
0
10
20
EUR GER FRA IRL ITA GRC POR SPA
Current account balance: Q2 2014 Q1 2010
Contribution from growth in:
Exports Imports (inverted sign) Other items*
Europe Outlook, February 2015
Unemployment since the beginning of the crisis (%) Sources: Haver and BBVA Research
The high unemployment remains the main problem of economic policy
The unemployment rate is well above that of
2008 (except in Germany)
Even so, it has begun to decrease earlier than
in other recoveries
Page 31
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
February 2015
Europe Outlook
Europe Outlook, February 2015
Section 1
Moderate global growth with increasing divergences ahead Section 2
Eurozone drivers: oil and ECB offset the downside risks Section 3
Forecast: solid growth from 2H15, … Section 4
… although the challenges remain Annex
Country breakdown
Index
Page 33
Europe Outlook, February 2015
Germany: growth gains momentum
The strong labour market will help private consumption to increase gradually
Uncertainty caused by geopolitical conflicts could lead companies to continue delaying
their investment plans to 2016
2013 2014 (f) 2015 (f) 2016 (f)
Activity
REAL GDP (% YoY) 0,2 1,5 1,4 2,2
Private consumption 0,9 1,1 1,5 1,8
Public consumption 0,7 1,0 1,2 0,9
Investment -0,4 3,1 2,0 4,0
Domestic demand (contr. %) 0,7 1,1 1,4 1,9
Exports 1,7 3,7 4,2 5,5
Imports 3,2 3,3 4,9 5,8
Net exports (contr. %) -0,5 0,4 0,0 0,2
External sector
Current account balance (% GDP) 6,7 7,1 7,2 6,9
Public finances
General Govt. Balance (% GDP) 0,1 0,2 0,0 0,0
Prices
CPI, % avg. 1,6 0,8 0,3 1,1
Page 34
Net exports will play a minor role in contributing to growth
Europe Outlook, February 2015
Germany: growth in 4Q14 supported by domestic demand factors
Ifo confidence, composite PMI and manufacturing orders from abroad Source: BBVA Research
Private consumption begins to grow at rates consistent with the favorable labor market
conditions
The liberalization of some services sectors would help boost consumption and domestic
growth
Page 35
-10
-5
0
5
10
15
20
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
Nov-1
1
Jan-1
2
Mar
-12
May-1
2
Jul-1
2
Sep-1
2
Nov-1
2
Jan-1
3
Mar
-13
May-1
3
Jul-1
3
Sep-1
3
Nov-1
3
Jan-1
4
Mar
-14
May-1
4
Jul-1
4
Sep-1
4
Nov-1
4
Jan-1
5
Ifo confidence indexPMI CompositeForeign Manufacturing Orders (YoY, rhs)3-per M.A. (FMO)
Europe Outlook, February 2015
France: recovery still slow in 2015
2013 2014 (f) 2015 (f) 2016 (f)
Activity
REAL GDP (% YoY) 0,4 0,4 1,0 1,8
Private consumption 0,3 0,4 1,3 1,4
Public consumption 2,0 2,0 1,0 1,0
Investment -0,8 -1,5 0,0 3,5
Domestic demand (contr. %) 0,3 0,4 0,9 1,7
Exports 2,4 2,5 3,5 5,3
Imports 1,9 2,5 3,0 5,0
Net exports (contr. %) 0,1 0,0 0,1 0,0
External sector
Current account balance (% GDP) -1,4 -1,6 -1,5 -1,5
Public finances
General Govt. Balance (% GDP) -4,1 -4,4 -4,3 -3,7
Prices
CPI, % avg. 1,0 0,6 0,1 0,9
Page 36
The recovery in 2015 and 2016 will be based on domestic factors, especially
consumption
The delay in the deficit adjustment should also help
Europe Outlook, February 2015
France: fiscal targets loosening to help economy recover
Unit labour costs (2005=100) and current account balance Note: Unit labour costs normalized to 100 in 2005 Source: BBVA Research
The loss of competitiveness is the main issue
in the medium term
The planned cuts in the tax burden on employment should be financed by lower
public spending
Page 37
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
95
100
105
110
115
120
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
FRA Current Acc. Balance (%GDP) RHS
Eurozone
France
Germany
Spain
Europe Outlook, February 2015
Italy: out of recession in 2015
2013 2014 (f) 2015 (f) 2016 (f)
Activity
REAL GDP (% YoY) -1,9 -0,4 0,6 1,3
Private consumption -2,7 0,2 0,5 0,8
Public consumption -0,7 -0,4 -0,5 0,0
Investment -5,4 -2,6 -0,5 2,7
Domestic demand (contr. %) -2,8 -0,8 0,1 0,9
Exports 0,9 1,8 4,0 4,9
Imports -2,6 0,3 2,5 4,0
Net exports (contr. %) 0,9 0,4 0,5 0,4
External sector
Current account balance (% GDP) 1,0 1,1 1,3 1,9
Public finances
General Govt. Balance (% GDP) -2,8 -3,0 -2,7 -2,4
Prices
CPI, % avg. 1,3 0,2 -0,2 0,6
Page 38
We continue to expect a slow recovery in 2015 (0.6%), driven by exports
Investment will still be affected by uncertainty linked to the slow pace of
reforms
Europe Outlook, February 2015
Italy: reforms needed to increase the growth potential
GDP/working age population (2000=100) Source: BBVA Research
In fiscal policy, the main problem is the high volume of public debt (132.7%), while the deficit reduction is slower than expected
The growth potential is very low
…but could recover, should fiscal and labour market reforms underway be
completed
Page 39
90
95
100
105
110
115
120
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Italy Spain Eurozone
Europe Outlook, February 2015
Spain: growth revision to the upside
2013 2014 (f) 2015 (f) 2016 (f)
Activity
REAL GDP (% YoY) -1,2 1,4 2,7 2,7
Private consumption -2,3 2,3 2,5 1,7
Public consumption -2,9 0,8 1,5 1,4
Investment -3,8 2,8 5,2 6,4
Domestic demand (contr. %) -2,7 2,1 2,7 2,4
Exports 4,3 4,4 6,1 7,2
Imports -0,5 7,6 6,8 7,1
Net exports (contr. %) 1,4 -0,7 0,0 0,2
External sector
Current account balance (% GDP) 1,4 -0,2 0,9 1,0
Public finances
General Govt. Balance (% GDP) -6,3 -5,5 -4,2 -2,8
Prices
CPI, % avg. 1,4 -0,2 -0,4 1,4
Page 40
Both in 2015 and in 2016, activity will grow by 2.7%, 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
Europe Outlook, February 2015
Spain’s deviation from the EU8 in 2013 Source: BBVA Research, based on Andrés & Doménech (2014)
Between 2015 and 2016 1,000,000 jobs will be created
Spain faces the challenge of raising its employment rate and its productivity
A return to the road of convergence
Spain: the labour market is improving, but challenges remain
Page 41
February 2015
Europe Outlook