Spain Economic Outlook - 1Q19 - BBVA Research
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BBVA Research – Spain Economic Outlook 1Q19 / 1 Spain Economic Outlook 1Q19 February 2019
BBVA Research – Spain Economic Outlook 1Q19 / 2 Key messages The global environment has deteriorated and is more uncertain, but we are still expecting a mild slowdown. The impact of protectionism is more evident and remains the main risk, along with an intense adjustment of growth in China and the US, and increased uncertainty in Europe In Spain, the advance of economic activity remains positive. However, in 2018, a deceleration in annual GDP growth of 0.5pp down to 2.5% was consolidated, as a result of a loss of tone in private consumption, a slowdown in external demand and greater uncertainty The global context, accommodative monetary policy, low oil prices and fiscal stimulus will continue to support growth, albeit less than in 2017-2018. GDP growth will remain around 2.4% in 2019 and moderate down to 2.0% in 2020. Risks are on the downside However, it is necessary to promote measures that improve the Spanish economy's capacity to respond to ongoing challenges and generate inclusive growth. Uncertainty regarding the sustainability of external growth increases, and doubts over economic policy and the effects of some measures already taken continue
BBVA Research – Spain Economic Outlook 1Q19 / 3
01
Global Economic Outlook
1Q19BBVA Research – Spain Economic Outlook 1Q19 / 4 Towards a still smooth adjustment of global growth, but with a lot of uncertainty Slowdown in Lower inflation Increased financial Central banks Global global growth, but after the fall in tensions in more cautious risks intensify still robust oil prices developed countries and patient Strong adjustment Less pressure on Strong asset price The normalization Protectionism is in trade and in the central banks and adjustment and of monetary policy coupled with a manufacturing more support for oil- outflows from will depend on possible further sector while importing investment, but not economic slowdown in China investment and economies in emerging developments and and the US, and consumption economies, where is key to containing increased remained there is market concerns. uncertainty in contained against differentiation. Europe. a worsening confidence
BBVA Research – Spain Economic Outlook 1Q19 / 5
Clear downward trend in global growth, but with signs
of some stabilization
World GDP growth
(Forecasts based on BBVA-GAIN, % t/t)
Global growth has entered into the
1.2 slowdown phase, but it is still strong
The widespread deterioration of
1.0
industrial production and trade suggests
a more evident impact of protectionism
0.8
Strong moderation in industrial
0.6
confidence extends to other
sectors, but growth in private
spending continues
0.4
Dec-13
Dec-15
Dec-16
Dec-17
Dec-18
Dec-14
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18 High uncertainty continues at the
beginning of the year and will continue
to weigh on growth
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 6
Global trade: more evident effect of higher tariffs
and uncertainty on trade negotiations
BBVA indicator of world exports of goods
(% YoY, 3-period moving average)
World trade has shown strong
9 volatility due to uncertainty about
8 trade disputes
7
China's recent poor export
6 performance is due, in part, to the
5 advancement of trade ahead of further
4 Average period
tariff increases. Nevertheless, the
3
growth: sharper than expected downward
4.2% trend in exports performance is cause
2
for concern
1
0 Poor export performance has also
Nov-11
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Nov-18
Nov-12
May-12
May-13
May-14
May-15
May-16
May-17
May-18
been observed in the rest of Asia
and Germany
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 7
Lower oil prices will support growth and ease
inflationary pressures
Crude oil price
(Brent, USD per barrel)
Oil prices may recover somewhat in
120 the short term due to production cut
110 announcements
100
90 Decline in supply offset by higher U.S.
80 production and lower global demand
70
60
Beyond their short-term volatility, crude
50 oil prices should remain close to their
40 long-term equilibrium level (60 USD
30 per barrel) in 2019-20
20
This could stimulate global growth
Nov-14
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
Nov-15
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20 between one and two tenths in 2019-20
Oct-18 Jan-19
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 8
Recent turmoil in the financial markets in face of the risk
of an abrupt adjustment in global growth
BBVA financial tension index
(Normalized index)
01 02
1.5
Developed markets (USA) Emerging markets
1.0
are at the center of the remained relatively
episode. Flows remain resilient despite the
0.5 cautious as they global mood and the fall
enter Europe in oil prices
0.0
-0.5
03 04
-1.0
Investors adjust their The response of
-1.5 portfolios: outflows of riskier central banks, (Fed)
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
May-13
May-14
May-15
May-16
May-17
May-18
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
assets and inflows into has been key, once
more liquid funds again, to halt tensions
Emerging Markets Developed Markets
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 9
Tensions were concentrated in developed markets.
Interest rates fall again
Developed equity index and VIX (%) Sovereign debt yields in developed
(Base 100: January 2015 and %) countries (%)
150 43 3.5
140 38 3.0
130 2.5
33
120 2.0
28
110 1.5
23
100 1.0
18 0.5
90
80 13 0.0
70 8 -0.5
Mar-15
Mar-16
Mar-17
Mar-18
Dec-14
Sep-15
Dec-15
Sep-16
Dec-16
Sep-17
Dec-17
Sep-18
Dec-18
Jun-15
Jun-16
Jun-17
Jun-18
ene.-15
abr.-15
ene.-16
abr.-16
ene.-17
abr.-17
ene.-18
abr.-18
ene.-19
jul.-15
jul.-16
jul.-17
jul.-18
oct.-15
oct.-16
oct.-17
oct.-18
VIX (rhs) S&P Eurostoxx 10Y US 10Y EZ
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 10
Emerging markets, after a strong adjustment in 2018,
remain on the sidelines during this episode
Currencies and bonds of emerging markets
(Indexes)
Economic policy reaction in
74 270 the most vulnerable countries
72 320 (Argentina, Turkey)
70
370
68
420
66 Economic stimuli
470
64 (China)
62 520
60 570
Nov-16
Nov-17
Nov-18
Sep-16
Sep-17
Sep-18
Mar-16
Mar-17
Mar-18
Jul-16
Jul-17
Jul-18
May-18
May-16
May-17
Jan-16
Jan-17
Jan-18
Jan-19
Asymmetrical effect
of falling oil prices
FX (EMCI) EMBI spread (exporters vs. importers)
Source: BBVA Research & BloombergBBVA Research – Spain Economic Outlook 1Q19 / 11
The environment of risk aversion is being seen in the recomposition
of capital flows, refuge in debt and liquidity
Portfolios flows by regions Portfolio flows: types of assets
(4 weeks avg, % assets under management) (%, assets under management accumulated since October)
0.60 0.20 6.0%
0.15
0.40 4.0%
0.10
0.20 2.0%
0.05
0.00 0.00 0.0%
-0.20 -0.05 -2.0%
-0.10
-0.40 -4.0%
-0.15
-0.60 -6.0%
-0.20
-0.80 -0.25 -8.0%
may.-15
may.-16
may.-17
may.-18
ene.-15
ene.-16
ene.-17
ene.-18
ene.-19
sep.-15
sep.-16
sep.-17
sep.-18
dic.-18
ene.-19
nov.-18
oct.-18
Emerging Markets Developed Markets (rhs) High Yield Money Markets
Source: BBVA Research & EPFRBBVA Research – Spain Economic Outlook 1Q19 / 12
Central banks are sensitive to increasing risks, and the process of
monetary normalization is slowing down
Balance Interest Rates
Ongoing reduction of the The end of the hiking 3.0% 3.0%
2.5%
size of the balance sheet cycle is near (two more
1.5%
(USD500bn in 2019) rate hikes of about 25pbs
0.8%
in 2019, but there's a risk
that they'll be less)
2016 2017 2018 2019 2020
End of the QE (in Dec 2018) Delay in the rate hike path 0.5%
due to a less supportive global
Total reinvestment of QE outlook and higher risks. Not
beyond the start of rate hike expected until June 2020
0.0% 0.0% 0.0% 0.0%
Very likely a new LTRO before
June 2019 2016 2017 2018 2019 2020
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 13
Global growth still mildly adjusted, but more uncertain due to
dependence on economic policies
Worse macro outcomes Higher financial stress
Faster slowdown than expected Risks of a strong global growth deceleration
(Protectionism + China) Tougher financial conditions
Evidence that the impact from the US fiscal stimulus
will fade earlier than expected
Three key assumptions for not to derail the smooth global adjustment:
01 02 03
Reduction of trade tensions UK's orderly exit from Fed and ECB more
between the U.S. and China, the EU cautious on monetary
and no change in the policy normalization
automotive sectorBBVA Research – Spain Economic Outlook 1Q19 / 14
Widespread downward revision of growth, with moderation more
evident in developed countries and emerging Asian countries
US
Eurozone
2019 2020
2.5 2.0
2019 2020
China
1.4 1.4
2019 2020
Mexico
6.0 5.8
2019 2020
World
2.0 2.2
Latam Turkey 2019 2020
3.5 3.4
2019 2020 Upward revision 2019 2020
2.1 2.4 Remains unchanged
1.0 2.5
Downward revision
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 15
U.S.: further slowdown in growth due to fading
fiscal stimulus and financial volatility
U.S.: GDP Growth
(% a/a)
GDP downward revision due to less
optimistic prospects for private
Current Previous investment and public expenditure
Private consumption will moderate as
2.8% the impulse of the tax cut disappears,
2.9% despite the strength of the labour market
2.8%
2.5% Inflation remains above target, but will
2.2% be gradually reduced to somewhat below
2.0% target in 2020
Downside risks have increased due to
1.6%
the deterioration of the global
environment, and there is also a
2016 2017 2018 (e) 2019 (f) 2020 (f) greater risk of recession over
the two-year horizon
(e) Estimation. (f) Forecast.
Source: BBVA Research as of BEABBVA Research – Spain Economic Outlook 1Q19 / 16
China: authorities' priority is to avoid abrupt
adjustment of growth
China: GDP Growth
(% a/a)
Growth forecasts remain unchanged,
due to the implementation of greater
Current Previous stimuli to halt the intensification of the
slowdown
6.8% Support measures, both fiscal and
6.7% 6.6% monetary, are spreading, but attempts
6.5% are being made not to worsen existing
6.0% financial vulnerabilities
6.0% 5.8%
Protectionism remains the main risk. If
it has to be compensated with more
stimuli, the necessary deleveraging
could stop, which could lead to a sharp
2016 2017 2018 2019 (f) 2020 (f) depreciation of the exchange rate
(f) Forecast.
Source: BBVA Research as of CEICBBVA Research – Spain Economic Outlook 1Q19 / 17
Eurozone: rapid deceleration towards potential growth due
to less support from the global environment
Eurozone: GDP Growth
(% y/y)
The fall in oil prices reinforces the
strength of domestic factors, but not
Current Previous enough to compensate for lower global
demand
2.5% A somewhat more accommodative
2.0% monetary and fiscal policy could offset
the effect of worsening confidence on
1.9% 1.7%
private spending
1.8%
Rapid fall in inflation, but core inflation
should gradually rise
1.4% 1.4%
Political risk has increased (Brexit and
2016 2017 2018 (e) 2019 (f) 2020 (f) more uncertainty in several countries)
(e) Estimation. (f) Forecast.
Source: BBVA Research as of EurostatBBVA Research – Spain Economic Outlook 1Q19 / 18
Global risks tilted to the downside. US recession fears,
trade war and China’s debt are key concerns
Economic recession: higher
Protectionism: high
Fed’s exit: falling
- Probability in the short term +
EE.UU.
CHN
Disorderly de-leveraging: relatively greater
EZ
Protectionism: high
Higher political uncertainty: brexit and Italy
Protectionism: contained but it could be not discarded
- Severity (at global level)+ ECB’s exit risk and changes in board: low
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 19
02
Spain Economic Outlook
1Q19BBVA Research – Spain Economic Outlook 1Q19 / 20
Economic activity will continue to decelerate
throughout the biennium
2018 2019 2020
GDP 2.5 % 2.4 % 2.0 %
-0,1pp
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 21
GDP growth surprised downwards in 2018, but remains solid
and away from stagnation
Spain: GDP growth
(MICA-BBVA model forecasts, % QoQ)
The slowdown could revert temporarily
1.5 1.5 in the short term. GDP grew 0,7% in
4Q18, in line with our forecasts
1.0 1.0 In addition, BBVA Research estimates
indicate that GDP growth could be
between 0.6% QoQ and 0.8% QoQ in
0.5 0.5
1Q19
Recent data confirm that the Spanish
0.0 0.0 economy grows faster than the rest of
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19 (f)
Jun-14
Jun-16
Jun-17
Jun-18
Jun-15
the EMU (0.4% QoQ on average)
CI 20% CI 40% CI 60%
Current Spain Economic Outlook 4Q18
(CI) Confidence interval. (f) Forescast.
Source: BBVA Research based on national sourcesBBVA Research – Spain Economic Outlook 1Q19 / 22
Factors behind the slowdown:
exhaustion of some tail winds
Spain: evolution of resident and non-resident
consumption
(% YoY) Absorption of pent-up demand of
consumption goods ceased to
7.6% contribute to economic growth in 2017
Private No-resident Moderation of geopolitical tensions in
consumption consumption
some competing countries reduces the
influx of non-resident tourists
Spending on resident and non-resident
2.8% private consumption will probably
2.4% 2.1% continue to loose traction
1.8%
1.6%
1.3% 1.3%
Ave. 2018 2019 2020 Ave. 2018 2019 2020
2015- (f) (f) 2015- (f) (f)
2017 2017
(f) Forecast.
Source: BBVA Research based on INEBBVA Research – Spain Economic Outlook 1Q19 / 23
Factors behind the slowdown:
lower global demand
Nominal exports of goods
(pp QoQ annualized)
Exports of goods slowed down in 2018:
4
3 Africa • The lower dynamism of global
Change in nominal exports growth
2 demand and the increase in oil
1 Rest of EMU prices during most of the year had a
0 negative impact on trade flows
(2018-2017)
-1 Asia
Portugal Italy USA
-2 • The atony was widespread among
-3 France the main export markets of the
Latam
-4 Germany
Rest of EU
Spanish economy
-5
-6
-7 Other*
-8
-1.5 -1.0 -0.5 0.0 0.5 1.0
Change in real GDP growth (2018-2017)
Source: BBVA Research
(*) It includes, Norway, Russia, Switzerland, Turkey and other small trading partners.
The size of the circles represents the weight of the country on Spanish exports of goodsBBVA Research – Spain Economic Outlook 1Q19 / 24
Factors behind the slowdown :
increase in internal and external uncertainty
Evolution of industrial confidence
(Annual change in standardized data)
The confidence of the agents and,
10 therefore, their consumption, savings
8 and investment decisions have been
6 conditioned by different sources of
4 uncertainty
2
• Protectionism increases and, in
0
Europe, political risk and doubts
-2
about the final outcome of brexit
-4
persists
-6
-8 • At domestic level, parliamentary
-10 fragmentation and its effects on
2017 2018 economic and territorial policy
European common factor Idiosyncratic factor Total decisions stand out
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 25
Outlook 2019-2020: recovery will continue,
although growth moderates
Global demand grows Monetary policy will remain Oil prices
Despite its slowdown, it accommodative They are revised downward, which
guarantees a healthy Although demand moderates, low lowers the cost of transport for
expansion of Spanish interest rates and the euro exports, while favors spending on
exports exchange rate will continue to drive consumption and investment of
economic activity companies and families
Fiscal policy will be slightly There is uncertainty about the effects of
expansive some economic policies implemented
In any case, the impact of the The increase in the statutory minimum
political cycle raises doubts wage (SMW) favors income and
about the evolution of public consumption in the short term, but will
expenditure and the fulfilment of have negative effects on growth and job
deficit targets creation in the long termBBVA Research – Spain Economic Outlook 1Q19 / 26
Recovery will continue, although growth moderates
Monetary policy will remain accommodative
Change in reference interest rates for
the Spanish economy
(bp, forecast end of period) Financial conditions will continue
being favourable for consumption and
investment decisions
• The increase in the official interest
rate is postponed to 2Q20. In
-25 -25 addition, long-term interest rates are
-30 expected to be somewhat lower
than in the previous scenario
-55 • The euro is expected to depreciate
slightly more against the dollar than
three months ago (1.20 vs 1.23 €/$
in 2019), which will favor
competitiveness against other
countries
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 27
Recovery will continue, although growth moderates
The lower price of oil will offset some headwinds
Spain: impact of the oil prices downward
revision on GDP growth
(% YoY, deviation from base scenario) The price of a barrel will be around 60
dollars on average during the current
0.5 biennium, 15% less than expected
three months ago.
• This will mean significant savings for
0.3 businesses and families
• In the absence of the downward
revision of the energy cost, the
Spanish economy would grow, on
average, 0.4pp less per year during
0.03 the current biennium
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 28
Recovery will continue, although growth moderates
Fiscal policy will maintain a slightly expansive tone
Spain: Public sector net borrowing*
and fiscal adjustment
(% of the GDP) Revenues have exceeded expectations
during 2S18, which has helped the
3.5 government to reduce the deficit down to
3.0
1.0
2.7% of GDP, despite higher
2.5 0.6 0.5 0.1
2.0 0.3 0.0 expenditures.
1.5 3.1
2.7
2.3
In the last part of 2018 and the
1.0 2.0
0.5
beginning of 2019 the Government has
0.0 adopted expansive measures, the
Cyclical variation*
Cyclical variation*
Cyclical variation*
Deficit 2017
Deficit 2018
Deficit 2019
Deficit 2020
Cyclically adjusted
Cyclically adjusted
Cyclically adjusted
impact of which will be reduced
throughout the year…
…however, and until the approval of the
PGE by 2019, the economic cycle is
expected to help the public deficit to be
2018 (e) 2019 (f) 2020 (f)
moderately reduced in 2019 and 2020
*Excluding assistance to the financial sector.
(1) Includes changes in interest charges
(e) Estimation. (f) Forecast.
Source: BBVA Research based on Ministry of Finance and Public Administration and INEBBVA Research – Spain Economic Outlook 1Q19 / 29
The risks in the scenario urge measures to improve
the response capacity of the Spanish economy
Global Europe Idiosyncratic
01 02 03 04 05
Protectionism Political Brexit Political Limitations of
and global uncertainty uncertainty growth capacity
deceleration
Open fronts could It is not yet clear how Parliamentary Wage pressures can
Protectionist tensions lead to a further the UK's exit from fragmentation could limit job creation and
at the international slowdown in the the European Union increase and, with it, economic growth,
level are a stumbling European economy will materialize and the conditioning especially if the
block to trade and therefore affect this adds instability factors on economic slowdown in economic
relations and Spanish exports. to the European
condition investment and territorial policy activity and the high
economic context.
decisions. decisions. unemployment rate
partly reflect capacity
constraints.BBVA Research – Spain Economic Outlook 1Q19 / 30
Idiosyncratic risks: uncertainty related to the political
environment in Catalonia
Social Security affiliation in the private sector
(% YoY)
6 4.0
4
3.5
2
0 3.0
-2
2.5
-4
-6 2.0
Dec-17
Dec-18
Aug-17
Aug-18
Oct-17
Apr-18
Oct-18
Feb-18
Jun-18
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Catalonia Synthetic Region Catalonia Synthetic Region
To establish a counterfactual we use a synthetic control methodology, as Abadie and Gardeazábal (2004)
Fuente: BBVA Research based on Social Security data
An analysis of the effect of uncertainty is available at https://goo.gl/K9zkjJ
The slowdown in Job creation from Aug-17 to This means that Catalonia today has 25,000 less
employment is more Dec-18 was 0.6 p.p. lower than people affiliated than the equivalent synthetic
intense in Catalonia in the counterfactual region would have (around 1% of total employment)BBVA Research – Spain Economic Outlook 1Q19 / 31
Idiosyncratic risks: uncertainty regarding economic policy
Impact of uncertainty on annual GDP growth
(Deviation from levels in pp)
0.00
-0.05
-0.10
-0.15
-0.20
-0.25
-0.30
2016 2017 2018 2019 (f)
(f) Forecast.
Source: BBVA Research
The uncertainty does not go away and it could not be ruled out that it will increase in a year
of intense electoral activity and given the fragmentation of the Spanish ParliamentBBVA Research – Spain Economic Outlook 1Q19 / 32
Idiosyncratic risks: uncertainty regarding fiscal policy
Spain: Public sector net borrowing* and fiscal
adjustment including the measures announced in
There are doubts about the impact that
the PGE 2019 project (% of the GDP)
the political cycle could have on public
0 spending and on the approval of the
-0.5 2019 budget
-1
-1.5 To achieve the current budgetary targets
-2 (1.3% and 0.5% of GDP in 2019 and
-2.5 2020) would require a sizable
-3 adjustment. Even with the measures
-3.5 announced in the 2019 budget, the
-4 deficit would be around 2%
-4.5
-5
In a favourable economic environment,
2016 2017 2018 (e) 2019 (f) 2020 (f) not reducing the gap between public
Target Cycle adjusted Forecast revenues and expenditures to below 2%
* Excluding assistance to the financial sector
of GDP would represent a missed
(1) Increases in corporate tax, personal income tax, wealth tax, green taxation, creation of new taxes (financial
transactions and digital services), and fight against fraud are not included.
opportunity to accumulate fiscal space
(e) Estimation. (f) Forecast.
Source: BBVA Research based on BBVA Research based on Ministry of Finance and Public Administration and INEBBVA Research – Spain Economic Outlook 1Q19 / 33
Idiosyncratic risks: uncertainty regarding economic policy
Perception of the pension system in the media
(%)
0,0
Approval of 10-year pension Consensus to link the rise
-0,2 plan rescue reform in pensions to the CPI
-0,4
-0,6
-0,8
Expenditure on Expenditure on
pensions pensions grows
-1,0 reaches a Expenditure on Loan to pay Pension
bonus pensions strike
historical record pensions grows
-1,2
may-15
may-16
may-17
may-18
feb-15
feb-16
feb-17
feb-18
ago-15
ago-16
ago-17
ago-18
nov-15
nov-16
nov-17
nov-18
In the short term, the mechanism for revaluing pensions through the CPI will boost income
and consumption. However, there is a need for an action plan aimed at improving
the perception of sustainability and equity of the system in the long termBBVA Research – Spain Economic Outlook 1Q19 / 34
Idiosyncratic risks: an unprecedented increase
in the statutory minimum wage (SMW)
FTE employment: impact of the increase in the SMW
(% Deviation from the scenario without SMW increase)
The increase in SMW could boost the
0 income and short-term spending of
-0.2 affected employees, which would
-0.4 exceed 9%
-0.6
However, BBVA Research's estimates
-0.8 suggest that it would have a negative
-1 impact on economic activity
-1.2 and employment
-1.4
In the long term, the impact could be
-1.6
between -0.9pp and -1.6pp of
-1.8
Short term (1 year) Long term (10 years)
employment, depending on whether
firms absorb the wage increase or pass
No pass through to Pass through to
final prices final prices it on to prices
Non-agricultural FTE
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 35
Idiosyncratic risks: limitations on growth
capacity and job creation
Spain: decomposition of nominal
compensation per employee
(%, Y/Y) Since mid-2018 there has been an
increase in real wages and a fall in
2.5
productivity, which may limit job
2.0
creation capacity and economic growth
1.5
1.0 The increase in inequality is an element
0.5 to watch out
0.0
-0.5 Wage improvements are welcome
-1.0 if they are accompanied by
-1.5 productivity gains
-2.0
Average 2018 2019 (f) 2020 (f)
2014-2017
Cyclical Structural
Total (cyclical + estructural) Productivity
(f) Forecast
Source: BBVA Research based on INE
An analysis of the SMW is available at https://bit.ly/2ExYjHRBBVA Research – Spain Economic Outlook 1Q19 / 36
2019-2020: Inflation and labour market forecasts
Employment
Inflation
growth (LFS)
2019 2020 2019 2020
2,1 1,8 1,3 1,5
Unemployment rate Compensation
per employee
2019 2020 2019 2020
13,8 12,6 1,9 2,2
Percentage, annual averages
Source: BBVA ResearchBBVA Research – Spain Economic Outlook 1Q19 / 37 Key messages The global environment has deteriorated and is more uncertain, but we are still expecting a mild slowdown. The impact of protectionism is more evident and remains the main risk, along with an intense adjustment of growth in China and the US, and increased uncertainty in Europe In Spain, the advance of economic activity remains positive. However, in 2018, a deceleration in annual GDP growth of 0.5pp down to 2.5% was consolidated, as a result of a loss of tone in private consumption, a slowdown in external demand and greater uncertainty The global context, accommodative monetary policy, low oil prices and fiscal stimulus will continue to support growth, albeit less than in 2017-2018. GDP growth will remain around 2.4% in 2019 and moderate down to 2.0% in 2020. Risks are on the downside However, it is necessary to promote measures that improve the Spanish economy's capacity to respond to ongoing challenges and generate inclusive growth. Uncertainty regarding the sustainability of external growth increases, and doubts over economic policy and the effects of some measures already taken continue
BBVA Research – Spain Economic Outlook 1Q19 / 38 03 Forecasts
BBVA Research – Spain Economic Outlook 1Q19 / 39
Changes in our forecasts
The fundamentals continue to support a relatively strong recovery
% YoY 2018 (e) 2019 (f) 2020 (f)
Final consumption expenditure 2,4 2,1 1,8
F.C.E. Households 2,4 2,1 1,8
General government 2,4 2,4 1,7
Gross fixed capital formation 5,2 4,6 4,6
Equipment and machinery 6,0 3,9 4,2
Construction 5,5 4,9 4,7
Housing 6,2 5,5 5,6
Other constructions 4,8 4,3 3,6
Domestic demand (*) 2,9 2,6 2,4
Exports 2,2 5,2 4,5
Exports of goods 1,8 5,4 4,9
Exports of services 3,0 4,6 3,6
Non-touristic services 4,1 6,9 5,0
F.C.E. by non-residents in the economic territory 1,3 1,3 1,6
Imports 3,6 6,2 5,7
External demand (*) -0,4 -0,3 -0,3
GDP mp 2,5 2,4 2,0
(*) Contribution to GDP growth.
(e) Estimation. (f) Forecast.
Source: BBVA Research based on de INE and BdEBBVA Research – Spain Economic Outlook 1Q19 / 40
Idiosyncratic risks: limitations on growth capacity and job creation
Typology of SMW beneficiaries
Work in small The new SMW may hinder access
Female
companies to employment for the most
Young vulnerable groups
people
The effect may be more severe if the
Foreigner Non-exporters upturn is transmitted to the rest of the
wage distribution and is not
Fixed-term accompanied by a proportional
contract increase in productivity.
In the service sector
Active labour market policies, key to
Part-time job
counteract possible negative effects
No collective
Primary education
agreement
Source: BBVA Research based on INE
An analysis of the SMW is available at https://bit.ly/2ExYjHRBBVA Research – Spain Economic Outlook 1Q19 / 41 Spain Economic Outlook 1Q19 February 2019
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