3. Economic growth in 2018 and forecasts for 2019
Source: Círculo de Empresarios based on IMF, July 2018 3
1,8
2.9 2.7
2.3 2.7
1.6 2.6
2.2 1.9
6.9 6.6
CHINA
EURO AREA
LATIN AMERICA
MEXICO
US
BRAZIL
1.8 2.5
RUSSIA
1.7 1.5
Robust economic growth, but with downward and less synchronised outlook
GLOBAL
AFRICA
3.4 3.8
Real GDP
% 2019
2018
3.9
3.9
Downward revision
4. Source: Círculo de Empresarios based on IMF, July 2018
4
Countries with growth forecasts of >2%
% of total countries in the world as of 2018
Solid global growth, but gloomy prospects for 2019
Real GDP growth forecast
%
2.4
4.9
3.9
EmergingGlobalAdvanced
2.4
3.9 4.7
2017 2018
Countries with growth < 2%
Countries with growth >2%
Downward revision
Note: the % of countries in recession in 2018 stands at 4.2%
-0.1 pp
17.7%
82.3%
5. Source: Círculo de Empresarios, July 2018
5
Global situation
Consolidation of the
expansion phase of
the economic cycle
Monetary policy
normalisation
Loss of momentum in global
trade and threat of trade war
Episodes of
volatility
Impact of inflation on
wages
Downward trend in
unemployment rates
High global debt
Turbulence in
emerging economies
In recent months, global risks are on the rise
Trends (+) Trends (-)
6. 6
Timeline of global trade war
The US imposes tariffs on steel (25%) and aluminium (10%)
which affects $46 billion worth of US imports (0.2% of its GDP)
US trade actions (June 2018)
$32-34 billion on Chinese technology goods
Effective date: 1 June 2018
US
China Effective date: 6 July 2018
+ Threatens tariffs on...
$14-16 billion on Chinese technology goods
China
China’s retaliatory tariffs on imports from US
$ 30 billion on agricultural products + $15 billion on automobiles and auto
parts, chemical products, petroleum
products, and medical equipment
Source: Círculo de Empresarios based on Economic and Security Review Commission, 2018
Note: Trump announced that he is ready to impose tariffs on $500 billion of Chinese goods
+ Threatens tariffs on...Effective date: 6 July 2018
7. Source: Círculo de Empresarios based on United States Census Bureau, 2018
7
Trade scenario
US Rest of the world
In 2017, the US ran a deficit in the balance of trade for goods & services of 2.9% of
its GDP (4.1% of its GDP if only goods) with its trading partners around the world
$1,546 billion (8% of GDP)
$2,342 billion (12.1% of GDP)
Exports of goods to the US
Exports of US goods
Countries with which the US runs the
biggest trade deficit in its balance of
trade for goods in 2017
1.9%
of GDP
0.4%
of GDP
0.35%
of GDP
0.33%
of GDP
8. 8
Global debt reaches 318% of global GDP
The increasing debt at a faster pace hits a record high of $247 trillion (Q1 2018)
Source: Círculo de Empresarios based on IIF & Bloomberg, 2018
Global Sectoral Indebtedness
$ trillion
Global debt
% of global GDP
318
269Q4 2007
Q1 2018
Total global GDP estimated by the IMF for 2018: $87.5 trillion
0
50
100
150
200
250
300
Q1 2003 Q1 2008 Q1 2013 Q1 2018
Households Non-financial companies Public sector Financial companies
9. Source: Círculo de Empresarios based on Bloomberg, 2018
9
Imbalances in Emerging Market Economies (I)
The trade war started by Trump
1
2
The tightening of US monetary policy
+
Destabilising financial
effects for Emerging Market
Economies (EMEs)*
Which has resulted in a stock market correction in emerging markets ...
MSCI Emerging Markets
January 2018=100
Emerging Market currencies in 2018
Variation between January – July (2018)
* These countries account for 60% of global GDP, and two thirds of global
GDP growth since 2010
80
85
90
95
100
105
110
115
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18
-35
-30
-25
-20
-15
-10
-5
0
10. Imbalances in Emerging Market Economies (II)
Vast proportion of debt held in dollars in EMEs (mainly Mexico, Turkey, and Argentina)
Source: Círculo de Empresarios based on BIS, 2018
EM debt denominated in dollars
$ trillion
EM debt denominated in dollars, by country
$ billion
0
0,5
1
1,5
2
2,5
3
3,5
4
Mar-00
Feb-01
Jan-02
Dec-02
Nov-03
Oct-04
Sep-05
Aug-06
Jul-07
Jun-08
May-09
Apr-10
Mar-11
Feb-12
Jan-13
Dec-13
Nov-14
Oct-15
Sep-16
Aug-17 0
50
100
150
200
250
300
Mar-00
Jan-01
Nov-01
Sep-02
Jul-03
May-04
Mar-05
Jan-06
Nov-06
Sep-07
Jul-08
May-09
Mar-10
Jan-11
Nov-11
Sep-12
Jul-13
May-14
Mar-15
Jan-16
Nov-16
Sep-17
Mexico Turkey Argentina
10
11. 9.9
7.6 7.6 7.5
7
6.7 6.9 6.7
Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018
Source: Círculo de Empresarios based on OECD, 2018
11
In China, the signs of slowdown are accentuated...
...although data reveals performance was well above the government’s target
of 6.5% economic growth for 2018
China GDP growth
% year-on-year
Signs of growth deceleration
- In May, the growth of retail was at its lowest
since June 2003
- Fall of investment in fixed assets due to the
negative impact of oil on global demand, the
reduction of credit, and the fall of confidence
due to the trade war with the US
- Industrial production decelerates markedly
faster than forecasted
Government target: 6.5%
12. 15
17
19
21
23
25
27
29
31
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18
Source: Círculo de Empresarios based on Bloomberg & IMF, 2018
12
Financial crisis in Argentina: IMF bailout request
The IMF agrees to loan $50 billion (7.8% of GDP*) in wake of the Argentine financial
crisis to reduce its main imbalances: inflation and deficit.
External factors
Internal factors
Falling export revenues due to the severe drought
Oil price increase
Tightening of US monetary policy (dollar appreciation
and interest rates hike)
High levels of deficit and public debt
High inflation rate
Argentine pesos per dollar (USD/ARG)
IMF bailout
Lagging economic indicators forecast, 2018
Inflation Unemployment Budget deficit
27% 8.5% -5.1%
Causes of the financial crisis
* In cumulative terms with respect to the GDP of 2018 in the 3 years in which the loan will be given
13. Source: Círculo de Empresarios based on IMF, Bloomberg, & PREP, 2018 13
Mexico: Obrador wins the elections
Scoring a historic landslide victory (receiving more than double the total of his
closest rival who had 22% of the votes)
Trump's immigration speech and the
NAFTA renegotiation may severely harm
investor confidence in Mexico
In terms of trade
Mexico’s exports to US account for 80% of its
total exports
Mexico exports to US US exports to Mexico
$314 bn
$243 bn
Mexico’s trade surplus in its
balance of trade for goods:
$70.9 billion: (6.2% of GDP)
14. Source: Círculo de Empresarios based on IMF, 2018 14
USA: robust growth
Fiscal reform and private consumption boost economic growth
2.72.92.3
2017 2018 2019
Real GDP (%)
ForecastForecast
15. Source: Círculo de Empresarios based on J.P. Morgan & NBER, 2018
15
The current US expansion phase is the 2nd longest in its history
Since the recovery in 2010, the annual growth rate
has been 2.3%
US economic weight & economic growth
% of global GDP & annual change
End date of expansion phase
Since the Great Depression, the US has had 14 periods of economic expansion
Length of economic expansion in the US
Months
Start date of expansion phase
0
5
10
15
20
25
-4
-2
0
2
4
6
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Real GDP Growth (left axis) World GDP weight (right axis)
21
33
19
12
44
10
22 27
21
50
80
37
45
39
24
106
36
58
12
92
120
73
108
Saptember1902
May1907
January1910
January1913
August1918
January1920
May1923
October1926
August1929
May1937
February1945
November1948
July1953
August1957
April1960
December1969
November1973
January1980
July1981
July1990
March2001
December2007
June2009
16. Source: Círculo de Empresarios based on Federal Reserve Bank of New York, and Federal Reserve of St. Louis, 2018
16
Although some leading indicators point to an unsettling
possibility of the economy overheating
10Y/2Y US Treasury spread
%
Probability of recession in the US
% (next 12 months)
Historically, an inverted yield curve has been an indicator
that a recession is coming in the next 12 to 24 months
[10-13%]
30bp
Flattening of the yield curve, but continues
to remain in positive territory
-300
-200
-100
0
100
200
300
400
Sep-76
Oct-78
Nov-80
Dec-82
Jan-85
Feb-87
Mar-89
Apr-91
May-93
Jun-95
Jul-97
Aug-99
Sep-01
Oct-03
Nov-05
Dec-07
Jan-10
Feb-12
Mar-14
Apr-16
May-18
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Jan-00
Dec-00
Nov-01
Oct-02
Sep-03
Aug-04
Jul-05
Jun-06
May-07
Apr-08
Mar-09
Feb-10
Jan-11
Dec-11
Nov-12
Oct-13
Sep-14
Aug-15
Jul-16
Jun-17
May-18
Apr-19
17. 1,0
1,2
1,4
1,6
1,8
2,0
2,2
2,4
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Core PCE Core CPI Swap 5y5y
Source: Círculo de Empresarios based on BEA, Focus Economics, & St. Louis Fed, 2018
17
Inflation rate hits Fed goal
The indicator (core PCE*) that is most often followed by the Fed stands at 2% with an
unemployment rate of 4%
US inflation indicators
Year-on-year change
Swap 5y5y: Measure of inflation expectations
Target
US wage growth & unemployment rate
Year-on-year change, % of active population
* Personal consumption expenditures excluding food and energy
0
2
4
6
8
10
12
Wage growth Unemployment rate
18. 0
1
2
3
4
5
6
May-07
Nov-07
May-08
Nov-08
May-09
Nov-09
May-10
Nov-10
May-11
Nov-11
May-12
Nov-12
May-13
Nov-13
May-14
Nov-14
May-15
Nov-15
May-16
Nov-16
May-17
Nov-17
May-18
Source: Círculo de Empresarios based on St. Louis Fed, 2018 18
The Fed increases the benchmark interest rate again
Fed benchmark interest rates
%
The Federal Reserve raises rates for the second time this year (2018) or the seventh time
since the beginning of the monetary policy normalisation
2015 2018
[2.13-2.4%][0-0.25%]
Central bank account balance
$ and € (trillion)
Gradual reduction in the balance
sheet of the Fed
A total of four rate hikes are expected to happen
throughout all of 2018, two are still pending
0
1
2
3
4
5
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Fed ECB
19. Source: Círculo de Empresarios based on Arcano & CBO, 2018
19
US 10-year Treasury yield climbs toward 3%
The core PCE hits 2%, and the unemployment
rate and growth are at robust levels
Causes...
3
Falling demand for US government bonds on
the part of China and the Fed
Supply of bonds increases due to Trump’s tax
reform, with a forecast that deficit widen from
3.9% of GDP in 2017 to 4.5% in 2019
Evolution of 10-year US bond (%)
2
1
US Treasury yield curve* (%)
2,0
2,2
2,4
2,6
2,8
3,0
3,2
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
1.9 2
2.3
2.5 2.6 2.7
2.88 2.93 2.99
0
1
2
3
1M 3M 1Y 2Y 3Y 5Y 10Y 20Y 30Y
* July 2018
20. Source: Círculo de Empresarios based on BBVA Research, US Census, The Economist, Bruegel ,2018
20
US: trade protectionism*
US-China trade of goods
$ billion
From January to May 2018, the deficit has widened with both China (+10% year-on-year) and
with the EU (+15%)
-1.94%
of GDP
US-EU trade of goods
$ billion
* In the last 50 years, global trade has gone from representing 10% of GDP to 60% of the world economy (BlackRock)
-0.8 %
of GDP
-600
-400
-200
0
200
400
600
2011 2012 2013 2014 2015 2016 2017
Exports US-China ImportsUS-China Tradedeficit
-200.000
-100.000
0
100.000
200.000
300.000
400.000
500.000
2011 2012 2013 2014 2015 2016 2017
Exports Imports Balance
21. Robust growth in the euro area with prospects on the
decline in 2019
Source: Círculo de Empresarios based on IMF, July 2018
1,8
2015 2016
2017
2018
2019
2.1%
Real GDP growth (%) Growth enabling factors
Employment creation
Internal demand
Growth limiting factors
Ageing population & pensions
Low productivity & debt
Euroscepticism
Forecast
Note: a darker colour represents greater growth
Forecast
22. ECB: end of Quantitative Easing (QE) in December 2018
22
Source: Círculo de Empresarios based on Bloomberg, 2018
US–DE
251 bp
Yields on 10-year government bonds in advanced economies
%
...while a stark divergence of the interest rate hikes between the ECB and the
Fed is maintained, as observed in the debt issues
ECB net monthly asset purchases
Until
September 2018
October-December
2018
€30 bn
€15 bn
2019€0 bn
“Interest rates will remain at their current level
until the summer of 2019” Mario Draghi
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
Jan-14
Apr-14
Jul-14
Oct-14
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
Japan UK Germany US
23. Germany: business climate deteriorates
Source: Círculo de Empresarios based on Zew & CESifo Group, 2018
Note: the index value of 100 indicates the threshold between “good” and
“poor” conditions.
Ifo Business Climate Index, Germany
Escalating trade tensions with the US take a toll on business owner expectations
Germany ZEW Economic Sentiment Index
Note: a positive number means that the share of optimists outweighs
the share of pessimists
70
75
80
85
90
95
100
105
110
Jan-07
Aug-07
Mar-08
Oct-08
May-09
Dec-09
Jul-10
Feb-11
Sep-11
Apr-12
Nov-12
Jun-13
Jan-14
Aug-14
Mar-15
Oct-15
May-16
Dec-16
Jul-17
Feb-18
-80
-60
-40
-20
0
20
40
60
80
Jan-07
Sep-07
May-08
Jan-09
Sep-09
May-10
Jan-11
Sep-11
May-12
Jan-13
Sep-13
May-14
Jan-15
Sep-15
May-16
Jan-17
Sep-17
May-18
24. 1,15
1,2
1,25
1,3
1,35
1,4
1,45
1,5
1,55
24
Source: Círculo de Empresarios based on Bank of England, ONS, Schroders, 2018
Brexit: two years since the referendum in the UK (I)
The impact of Brexit on the depreciation of the pound
persists...
Looming uncertainty remains over UK exit, especially after the resignations of Davis
(Brexit secretary) and Johnson (Foreign secretary)
GBP/USD (Dollars per pound)
...which has boosted the growth of the stock market
3.000
3.200
3.400
3.600
3.800
4.000
4.200
4.400
FTSE All-Share Index
Brexit
25. 25Source: Círculo de Empresarios based on OECD, IMF, 2018
Negative impact on economic growth and inflation, conditioning its future to the terms of
the final Brexit agreement
Real GDP growth
%
Rate of increase in prices
Annual change
Brexit: two years since the referendum in the UK (II)
2.3
1.9
1.7
1.4
1.5
2.4
2
2.7
2.5
2.1
2015 2016 2017 2018 2019
UK EU-28
-0,5
0
0,5
1
1,5
2
2,5
3
EU-28 UK
26. Raw materials (I): oil prices on the rise
Source: Círculo de Empresarios based on EIA & Bloomberg, 2018 26
The actions of OPEC*, a greater global demand, and geopolitical instability condition
the movements in oil price
Brent barrel spot price
$
*OPEC accounts for approximately 70% of total oil reserves (BP)
Also, in the face of US sanctions, Iran has
threatened to block the Strait of Hormuz
(30% of global crude oil traffic)
US exit from the Iran agreement,
conflicts in the Middle East and
oil production falls in Venezuela
Increase in crude oil
production
US stocks drawdown and
speculation on sanctions
being imposed on Iran**
**OPEC’s third-largest producer
Oil traffic (millions of barrels per day)
60
65
70
75
80
85
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18
0
4
8
12
16
20
Strait of
Hormuz
Strait of
Malacca
Suez Canal Strait of
Mandeb
Danish
straits
27. Currency market: dollar strength
Source: Círculo de Empresarios based on Bloomberg, St. Louis Fed, & ECB, 2018 27
The dollar appreciates against the main currencies of advanced and emerging economies
Solid economic growth in the US
3
Interest rate hikes by the Fed
Repatriation of foreign profits made possible
by the tax reform
2
1
Main causes... Exchange rate of the dollar against the major
currencies of advanced economies (1975=100)
60% 43.8% 39.9%
Debt and
international loans
Forex market
transactions
Means of
payment
Reserve
currency
62.7%
Weight of the dollar in the International Monetary System
% of total 82
84
86
88
90
92
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18
28. Financial markets (I)
28Source: Círculo de Empresarios based on Bloomberg & Caixabank Research, 2018
Uncertainty increases financial instability
In the last 6 months, in the financial markets ...
Episodes of
stock market
losses
Dollar
appreciation
Interest rates
on the rise
Risk premium
instability
Financial conditions of financial markets
Volatility spike
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
-1,8
-1,6
-1,4
-1,2
-1,0
-0,8
-0,6
-0,4
-0,2
0,0
St. Louis Fed Financial Stress Index (left axis) VIX (right axis)
29. Financial markets (II)
29
Technology companies spearhead the stellar rise in US stock markets
(98% of the rise of the S&P 500 in H1 2018)
Source: Círculo de Empresarios based on S&P, Bank of America Merrill Lynch US Equity, 2018
Contribution to the S&P 500 return, by sectors
H1 2018, %
H1 S&P 500 return: 2.65%:
-1
0
1
2
3
4
FAANG Resto S&P 500
Contribution of the FAANG to the S&P 500 return,
H1 2018, (%)
FAANG: Facebook, Apple, Amazon, Netflix, & Google
H1 S&P 500 return: 2.65%:
-1
-0,5
0
0,5
1
1,5
2
2,5
3
30. Financial markets (III)
30
Valuations higher than the historical average, although the earnings of S&P 500 in Q1
grew at their fastest rate in seven years
Source: Círculo de Empresarios based on Yale, 2018
*CAPE Shiller: relation between the price of stock market and the average of 10 years of earnings adjusted for inflation
S&P 500 and CAPE (Cyclically Adjusted Price-to-Earnings ratio*)
Average CAPE for period analysed: 18.1
S&P 500 growth vs S&P 500 Real Earnings Growth
March 2013=100
0
500
1000
1500
2000
2500
3000
0
5
10
15
20
25
30
35
40
45
50
CAPE Schiller (left axis)
SP 500 (right axis)
60
80
100
120
140
160
180
200
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
Mar-18
SP 500 SP 500 earnings
32. Growth forecast at a slower rate
32
2018*
2019*
2017
3.1%
2.8%
2.4%
* Forecast
Source: Círculo de Empresarios based on European Commission & IMF (WEO Update, July), 2018
IMF forecasts unaltered: 2.8% in 2018 and 2.2% in 2019, compared
to the three-tenths downgraded for France, Italy and Germany
The European Commission has reduced Spain's growth by one-tenth for 2018 to 2.8%,
maintaining the figure for 2019 at 2.4%
The Spanish government upholds its forecasts for 2018 (2.7%) and
2019 (2.4%), while reducing them for 2020 (2.2%) and 2021 (2.1%)
33. Factors that curtail growth
33
• Impact of inflation on the purchasing power
• Impact of the easing on the fiscal consolidation policy
• Persistent structural unemployment
• Stagnation of productivity
• Announcement of increase in corporate tax
• Paralysis of the reform impulse in the wake of a minority
government and the near future electoral period
• Rise in the prices of raw materials
• Monetary policy normalisation
34. • Private consumption = 2.8%
• Public consumption = 1.9%
• Gross Capital Formation = 3.5%
Domestic demand sustains growth and the
contribution of the external sector has slowed
In April, growth eased = 2.8% year-on-year
Domestic demand
% year-on-year change
2.8 pp contribution to growth
Source: Círculo de Empresarios based on Bank of Spain & FUNCAS, July 2018 34
0.2 pp
External demand
of goods and services
% year-on-year change
contribution to growth
• Exports = 3.2%
• Imports = 2.8%
Q1 2018
Year-on-year GDP growth= 3% GDP (year-on-year change) and contribution of domestic and foreign demand (pp)
2.9
3.4
3.6
3.8
3.5 3.4
3.2
3 3 3.1 3.1 3.1 3
2.8
Domestic demand
External demand
35. The construction sector and the residential
market recover
35Source: Círculo de Empresarios based on Bank of Spain, Ministry of Labour, Migrations & Social Security, and INE, July 2018
Evolution of the construction sector
% of GDP and annual change
Evolution of sales transactions and the price of
housing
Millions and % change year-on-year
Strengthening demand causes the
price of housing to soar
10.1
5.4
-15.4
6.0
-25.8
6.0
0
1
2
3
4
5
6
7
8
9
10
11
-26
-24
-22
-20
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
Q1
2016
Q1
2017
Q1
2018
Construction GVA in %GDP (right axis)
Construction GVA annual change (left axis)
Average construction affiliation annual change
(left axis)
% annual change % GDP
1,5
2,5
3,5
4,5
5,5
6,5
7,5
350
370
390
410
430
450
470
490
510
530
550
Sales transactions (left axis)
Price Index (right axis)
Millions % annual change
36. 36
Andalusia
Murcia
Valencia
Balearic I.
Extremadura Castilla-La Mancha
Madrid
Castille and Leon
La Rioja
Asturias
Galicia
Cantabria
Basque C.
Aragon Catalonia
Navarra
Canary I.
Source: Círculo de Empresarios based on Sociedad de Tasación, July 2018
National total
The real estate effort* is greater in the Balearic
Islands, Catalonia, and Madrid
* Real Estate Effort Index
Number of years of full salary that an average citizen would need
to allocate for the purchase of a medium-sized home
It is calculated using the quotient of the market value of the
home and the gross annual average income published by the INE
(Wage structure survey)
7.2
6.9
5.3
5.8
7.3
6.1
4.8
5.2 8.4
8.1
5.4 5.4
7.0
5.0
5.7
15.6
7.3
10.7
12
13.2 13.5
12.7
11.3
10.7
9.5
9
7.9 7.5 7.3 7.3 7.3 7.6
Q22004
Q22005
Q22006
Q22007
Q22008
Q22009
Q22010
Q22011
Q22012
Q22013
Q22014
Q22015
Q22016
Q22017
Q22018
37. • 2.63 million more affiliates than 5 years
ago, up to a total of 19 million
37Source: Círculo de Empresarios based on Ministry of Labour, Migrations & Social Security, and Treasury, 2018
Evolution of affiliation, registered unemployment and
unemployment benefit expense
% change year-on-year June/June and % of GDP
• From all-time highs in 2013, with more than 5
million unemployed, unemployment has
fallen by almost 2 million to 3.16 million
• At the same time, unemployment benefits
expenses have been reduced since 2013
Job creation drops off
• The affiliates-pensioners ratio has recovered
to levels of 2016, standing at 2.29
• In June, the pace of unemployment
reduction and affiliates growth in year-on-
year terms slows down
3.2 3.2
1.5
-6.5
-3.7
3.8 3.1
49.1
12
-10.7
-6
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
-12
-8
-4
0
4
8
12
16
20
24
28
32
36
40
44
48
52
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Unemployment benefit
expense (right axis)
Affiliation (left axis)
Unemployment (left axis)
% annualchange
% GDP
38. Unemployment rate falls (LFS Q2 2018)
38Source: Círculo de Empresarios based on Labour Force Survey Q2 2018 (INE), 2018
Q2 2018 vs Q1 2018
• The unemployment rate fell by 1.46 points to
15.28% of the active population, to a total of
3,490,100 unemployed people
• The number of employed people increased
by 469,900 people (+2.49%) to 19,344,100
• 79% of the increase in employment is
concentrated in the service sector
In year-on-year terms, unemployment was reduced by 424,200 people and 530,800 jobs were
created, 21.5% in the public sector
Unemployment rate & evolution of the number of employed
% of active population & number of people (thousands)
24.4
26.94
15.28
16500
17000
17500
18000
18500
19000
19500
15
17
19
21
23
25
27
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
Employed (right axis) Unemployment rate (left axis)
39. 39
Source: Círculo de Empresarios based on Eurostat, 2018
The lack of reforms allow for duality to exist in
the labour market in Spain
Spain is the EU country with the highest rate of temporary contract employment: 26.2%
Rate of temporary employment
% of employed aged 16 to 65 years
Evolution of rate of temporary employment
% of employed aged 16 to 65 years
▼36.4%
▲19.1%
26.2
25.3
21.7
20.9
16.5
15.7 15.7
14.9
13.9
12.5
9.3 9.1
5.5
34.6
22
26.2
20,0
25,0
30,0
35,0
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013
Q12014
Q32014
Q12015
Q32015
Q12016
Q32016
Q12017
Q32017
Q12018
40. And unemployment continues to double the
euro area average
40
Source: Círculo de Empresarios based on Eurostat, 2018
Spain continues to have very high rates
of unemployment
2nd country of the EU 28 in total and
youth unemployment after Greece
Unemployment EU 28
May 2018, % over active population
Greece
Spain
Italy
43.2%
33.8%
31.9%
20.1%
15.8%
10.7%
< 25 yearsTotal
3.43.83.94.1
5.36.277.38.49.2
10.7
15.8
6.1
10.9
6.9
11.512
15.515.1
20.8
16.8
20.4
31.9
33.8
Germany
Poland
Netherlands
UK
Ireland
Sweden
EU-28
Portugal
Euroarea
France
Italy
Spain
Unemployment
Unemployment under 25 years
41. 60,022
64,375 66,815 63,008
53,744
41,634
32,481
15,020
8,095
-80000
-60000
-40000
-20000
0
20000
40000
60000
80000
Endowments(1) Withdrawal(2) Yield(3) Balance
(1) From its creation in 2000 to December 31, 2017
(2) From 2012 to December 31, 2017
(3) Since its creation in 2000 until December 31, 2017.
Profitability accumulated in the period stands at 4.27% in annualized terms
The Social Security Reserve Fund is running out
41Source: Círculo de Empresarios based on Ministry of Labour, Migrations & Social Security, 2018
Accumulated balance of the Social Security Reserve Fund
Millions € (at acquisition price)
Position at year end 31 December of each FY
0.7%
GDP
Between 2000 & 2017, €94.2 billion have
been used along with the SS contributions to
pay pensions:
• Provisions of the Reserve Fund: €74.4 bn
• Surplus from the Contingency Reserve
Fund: €9.6 bn
• Loan of the Treasury to the Social Security
in 2017: €10.1 bn (€5.9 bn in July & €4.2 bn
in December)
In 2018, a new loan of €15.1 billion is requested
42. 42Source: Círculo de Empresarios based on INE & Eurostat, 2018
Risk for Spanish competitiveness: rise in
inflation
In June, for the second consecutive month, inflation in Spain exceeds that of the euro area
Since January, inflation has
accelerated in Spain by 1.7 pp.
• Increase in fuel prices (+11.9%)
and its impact on:
✓ Transport (+6.1%)
✓ Housing (+2.6%)
• Rise in fresh produce
The difference with the euro area
stands at 0.3 points, the highest in 8
months
Evolution of prices
% change year-on-year
3 3
2.3
2.6
1.5 1.5
1.8
1.6
1.7
1.1
0.6
1.1
2.1
2.3
2
0,5
1
1,5
2
2,5
3
General CPI
Core CPI*
Euro area's CPI
* General index without unprocessed foods or energy products
43. Private debt maintains its downward trend…
43Source: Círculo de Empresarios based on Financial Accounts of the Spanish Economy Q1 2018, Bank of Spain, 2018
In Q1 2018, the private debt of non-financial corporations and households reached €1.83 trillion,
accounting for 156.4% of GDP, 9.4 pp less than in Q1 2017
Evolution of debt of non-financial corporations & households
Unconsolidated debt*
Trillion € and % of GDP
* In consolidated terms, the debt of both sectors amounts to €1.6 trillion in Q1 2018,
which is 137% of GDP
Debt of non-financial corporations & households
% of the total debt of non-financial corporations & households
95.9% of GDP
60.5% of GDP
35.6
100.4 98.3 98.2
0,0
0,2
0,4
0,6
0,8
1,0
1,2
1,4
35
45
55
65
75
85
95
105
Public debt in trillions (right axis)
Public debt %GDP (left axis)
Trillion
€
% GDP
61.3%
38.7%
Non-financial
companies
Households
44. 35.6
100.4 98.3 98.2
0,0
0,2
0,4
0,6
0,8
1,0
1,2
1,4
35
45
55
65
75
85
95
105
Public debt in trillions (right axis)
Public debt %GDP (left axis)
Trillion
€
% GDP
… while public debt remains at similar levels
44Source: Círculo de Empresarios based on Bank of Spain, 2018
Public debt stood at 98.2% of GDP in May, exceeding the target set for 2018 (96.8%)
Evolution of public debt
% of GDP and trillion €
Objective
60%
By Administrations (May 2018)
% of total
• Volume in May 2018: €1.15 trillion
• +2.7% year-on-year, mainly due to an
increase in the State's debt: 4.3%
74.9
21
2.1
2 General Government
Autonomous communities
Local corporations
Social Security
45. The new deficit targets delay the reduction in
public debt
45Source: Círculo de Empresarios based on Mineco, Minhafp & AMECO, 2018
Evolution of the public budget balance
% of GDP
The government slows down fiscal consolidation:
• The deficit widens to 2.7% in 2018 and 1.8% in 2019
(where the objectives of the Stability Program are 2.2%
and 1.3%, respectively)
Balance and deficit targets
% of GDP
* Forecast
• Lowering of the Autonomous Communities deficit target
in 2019 to 0.3% (as opposed to the 0.1% forecast)
It would mean an increase of the public debt in
almost €40 billion in gross terms
(the largest since 2014)
• Proposed expenditure cap for 2019 = €125 billion
(+4.4% year-on-year)
Balance
2017
Target
2018
Target
2019
General Government -1.9 -0.8 -0.4
Autonomous communities -0.3 -0.6 -0.3
Local corporations 0.6 0.1 0,0
Social Security -1.5 -1.3 -1.1
Total Public administration -3.1 -2.7 -1.8
Note: data without financial help
1.9
-4.4
-11
-9.4 -9.6
-10.5
-7
-6
-5.3
-4.5
-3.1
-2.4
3.5
-2.9
-9.3
-7.5 -7.2 -7.5
-3.5
-2.5 -2.2
-1.7
-0.6
-0.1
-12
-10
-8
-6
-4
-2
0
2
4
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Spain's budget balance
Spain's primary budget balance
Euro area's primary budget balance
46. Risk of changing the tax policy
46
Source: Círculo de Empresarios, 2018
▲
IMPOSITION
Rule of law
&
competitiveness
Inflation
Employment
Income
&
consumption
Investment
New
measures
announced
- Tax increase on diesel,
technology and banking
- Set a minimum Corporate Tax rate
for large companies: 15%
- Dispose of the upper limit on
Social Security contributions
47. Fiscal situation compared to the European average
47
Source: Círculo de Empresarios based on Spanish Tax Agency & Eurostat, 2018
Average tax collection 2007-16
% of GDP
Tax collection 2016
% of GDP
Although Spanish rates are in line with the European average, between 2007 and 2016 the
greatest difference in collection with the EU28 occurred in income tax and VAT
5,6
7,4
2,5
12,6
6,8
9,2
2,6
13,2
0
2
4
6
8
10
12
14
VAT Personal
Income tax
Corporate tax Social
Security
contributions
Spain EU-28
1,2
1,8
Gap 2007-16
0,6
0,1 6,4
7,3
2,3
12,2
7
9,3
2,6
13,3
0
2
4
6
8
10
12
14
VAT Personal
Income tax
Corporate tax Social
Security
contributions
Spain EU-28
0,6
2
0,3
Gap 2016 1,1
48. Corporation tax collection begins to recover
48
Source: Círculo de Empresarios based on Spanish Tax Agency, & DIRCE (INE), 2018
45.3%
of total file
for tax
65%
of total file
for tax
2015Pre-crisis
Earnings
Consolidated
tax base
€177.5 bn €84.2 bn
Due to accumulation of prior year losses
and destruction ≈ 300,000 companies
between 2008-2014 (DIRCE, INE)
Effective corporation tax rate
10% 22.5%
On Consolidated
Accounting Result1
On consolidated tax
base
1 Does not take into account the taxation of companies in third
countries nor the negative tax bases accumulated in prior years
Companies filing for tax2
Corporation tax collection 2007-17
Million €
Between 2011and 2017, collection has increased from 10.3% to 11.9% of total tax revenues, despite the
fact that 54.7% of companies presented losses in 2015 and the destruction of 300,000 companies during
the crisis
Medium & large sized companies 55.4% collection2
1.4% of medium and large sized
companies with positive tax bases or
0.6% of total respondents
2 Data for 2015 (latest available)
193,951
23,143
0
30000
60000
90000
120000
150000
180000
210000
2011 2012 2013 2014 2015 2016 2017
Tax income
Corporate tax
49. Exports
Capital goods
Automobile
Food, beverages and
tobacco
49
Balance of trade, Sectorial distribution
Change with respect to the same period of the previous year
Source: Círculo de Empresarios based on Ministry of Industry, Trade and Tourism, July 2018
The trade deficit widens
Imports
Capital goods
Chemical goods
Energy goods
Exports ▲ 2.8% €94.9 bn
Imports ▲ 4.4% €104.9 bn
BALANCE ▲ Deficit 23.5% - €9.98 bn
Energy deficit▲ 5.3%
Sectorial distribution, January – May 2018
% of total
19.3
17.1
16.6
20.5
15.4
14.2
Geographical distribution, January – May 2018
% of total
Evolution of trade in goods, January – May 2018
% of GDP
-1.6
-0.5 -1 -0.9 -0.6 -0.8
-1
-2
0
2
4
6
8
10
12
2012 2013 2014 2015 2016 2017 2018*
Goods exports Goods imports Balance
* GDP stimated in 2018 by IMF
Exports Imports
Europe 72.5 60.6
EU 66.7 54.6
America 10.1 10.1
Asia 8.9 20.3
China 2.1 7.8
Africa 6.4 8.6
Others 2.1 0.4
50. Tourism contributes less to growth
50Source: Círculo de Empresarios based on EXCELTUR, 2018
In Q2 2018, the growth of tourism GDP in Spain slowed down to 2% year-on-year (vs 3.1% in Q1 2018), reducing the
growth forecast for the whole year to 2.6%
Annual tourism GDP growth & general GDP of the Spanish economy
2006-2018
% change year-on-year
Determining factors of downward
correction:
• Slowdown in Q2 due to the worst
weather conditions and lower national
demand
• Recovery of the market share by the
Eastern Mediterranean competitors
• Fewer tourist arrivals from Germany
and the UK
2.6
2.7
-6
-4
-2
0
2
4
6
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Tourism GDP Spanish GDP
* Forecast
51. Tourists increase their spending
51Source: Círculo de Empresarios based on FRONTUR & EGATUR (INE), 2018
Catalonia
Balearic isles
Andalusia
-2.1%
0%
2.4%
23.2%
13.8%
13.7%
% change
YoY
% of
total
TOP 3 host Autonomous Communities,
January-May 2018
84.6% come to Spain for holidays, and the remaining 15.4% for professional reasons and others
Catalonia continues to lead the reception of tourists between January and May of 2018, but the influx is
reduced by 2.1% in year-on-year terms
United Kingdom
Germany
France
-2.3%
-2.7%
0.6%
21.9%
13.8%
13.7%
% change
YoY
% of
total tourists
TOP 3 sender countries, January-May 2018
19.2%
13.4%
7.8%
% of
total
spending
Between January and May, 28,573,668 international tourists arrived in Spain, 2% more than in the same period of
the previous year, and spent €29.5 billion, 4.1% more than in 2017
52. Competitiveness of Spain
52
Advantages and difficulties identified
in the Barometer of the Circles 2018
▪ Quality assessment and cost of skilled labour
▪ Quality of physical infrastructure
▪ Size and location of the domestic market
▪ Important and growing export sector
Difficulties
▪ Quality of the Spanish education system
▪ Effort put into innovation and technological adaptation
▪ Inefficient functioning of the public administrations
▪ Duality of the labour market
▪ Corruption and shadow economy
▪ Sustainability of the pension system
Source: Barometer of the Círculos 2018
Advantages
Spain is not ranked among the 20 most competitive
countries in the world…
53. Interest rates and risk premium
53Source: Círculo de Empresarios based on Bank of Spain & Bloomberg, 2018
The risk premium exceeds 90 basis points, although it still maintains the gap with Italy
Risk premiums from Spain and Italy
compared with the 10-year German bond
50
100
150
200
250
300
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Prima Italia
Prima España
bp
Apr-10
Nov-10
Jun-11
Jan-12
Aug-12
Mar-13
Oct-13
May-14
Dec-14
Jul-15
Feb-16
Sep-16
Apr-17
Nov-17
Jun-18
Moody´s S&P FitchAaa AAA
AA+
AA
AA-
Aa1
Aa2
Aa3
A+
A
A-
A1
A2
A3
BBB+
BBB
BBB-
Baa1
Baa2
Baa3
GradeItalian risk premium
Spanish risk premium
Evolution of Spain’s rating
2010-2018
54. 54Source: Círculo de Empresarios based on BME, 2018
Financial markets
Evolution stock market
January 2018=100
The stock markets face an environment of higher volatility and greater political uncertainty
* Includes: Continuous market, trading floors of the four stock exchanges, MAB (The Alternative Spanish Equity Market), & Latibex
92
96
100
104
108
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18
IBEX 35 Eurostoxx 50 S&P 500
55. www.circulodeempresarios.org
‘The quarterly report’, is a publication of the Círculo de Empresarios produced by its Department of the Economy, contains information and opinion from reliable sources.
However the Círculo de Empresarios does not guarantee its accuracy and does not take responsibility for any errors or omissions. This document is merely informative. As a
result, the Círculo de Empresarios is not responsible for any uses that may be made of the publication. The opinions and estimates of the Department can be modified
without prior warning.