Presentación de PowerPoint - BBVA Research · W orld Tra de Eur ozon e expo rts N EER (R HS) Lower...
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Europe’s future Europe’s future New York, Oct 22 2015
Transcript of Presentación de PowerPoint - BBVA Research · W orld Tra de Eur ozon e expo rts N EER (R HS) Lower...
Europe’s future
Europe’s future
New York, Oct 22 2015
Europe’s future
• Global outlook: moderate growth under an uncertain scenario
in emerging economies.
• Eurozone: resilient domestic demand but subject to external,
political and geopolitical risks.
• Spain: we expect growth of 3.2% in 2015,although with a
downward bias and with risks related to political uncertainty.
• Banking Union has to be completed and further integration in
Europe pursued. It will not be easy!
• Financial sector challenges: profitability, crisis legacy,
deleveraging
2
Main messages
Europe’s future
1 Global 3
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• The current economic recovery is atypical and fragile
• World growth will not surpass the pre-crisis level
• The outlook is uncertain and continues to have downside risks
World Economic growth
(% of GDP)
Prospects of modest growth
(f)
Economic growth Average 2000-2014 4
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An uncertain scenario among the emerging economies…
Great uncertainty due to:
Doubts over China's economy
The effects of low commodity prices
The imminence of the Fed rate hike cycle
The lack of credibility of certain economic policies
?
?5
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100
125
150
175
200
Dec-02 Dec-05 Dec-08 Dec-11 Dec-14
US China
5,0
7,0
9,0
11,0
13,0
-4,0
-2,0
0,0
2,0
4,0
Dec-02 Dec-05 Dec-08 Dec-11 Dec-14
US China, rhs
…and yet, after the Great Recession, we are where we would have hoped to be (more or less) back then
… and debt switch from DM to EM Non Financial Private Sector, GDP %
Growth switch from EM to DM … GDP growth, YoY, (4Q MA)
2.5%
7%
Source: BBVA Research Source: BBVA Research 6
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Emerging
Economies Domestic
problems in
major
economies
Source: BBVA Research
Europe Greece
Slow integration
Political risks
(refugees)
What are the risks? Biased towards EM
Global
geo-political Middle East
Russia/Ukraine
China Sudden
correction to
activity
Rising risk
Risk remains the same
Emerging
Economies Domestic
problems in
major
economies
Source: BBVA Research
Global
geo-political Middle East,
Russia/Ukraine
Rising
Holding steady
Falling
United
States Pace of rate
hikes that stifles
growth
Falling risk
7
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2 Europe 8
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• Domestic demand is strengthening
• … which is lifting disposable income and feeding towards higher consumption
• The external environment is more negative, except for the boost from the oil price slide …
Europe: weak foreign demand but resilient domestic forces
Economic growth
Source: BBVA Research
(% of GDP)
(f) (f)
- 0 .3
0 .9
1 .5
1 .9
- 1 .0
- 0 .5
0. 0
0. 5
1.. 0
1. 5
2. 0
2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6
9
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An overview of the drivers of growth in the eurozone
A lower than expected depreciation of the euro
Positive impact of structural reforms in
the periphery
Global slowdown: China and emerging markets
Greece lingering, and new domestic shocks
(refugees, VW?)
Neutral fiscal policy
QE until Sep’16 / OMT Low oil prices
Solid domestic factors (confidence, labour
market, credit)
Resilience, despite recent events (elections,
geopolitics, China’s news)
10
Europe’s future
0.85
0.90
0.95
1.00
1.05
1.10
1.15
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15
World Trade Eurozone exports NEER (RHS)
Lower foreign demand, though main traders’ projected to remain resilient
• Sharp depreciation of the
euro since mid-2014 helped
to mitigate the fall of World
trade in the first half of 2015
• Global trade might be
recovering in Q3
World trade and EZ exports (% QoQ) and NEER
Source: CPB, Eurostat and BBVA Research 11
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-3
-2
-1
0
1
2
3
4
3Q01 3Q04 3Q07 3Q10 3Q13 3Q16
HH disposable income
Private consumption
65
70
75
80
85
90
20
21
22
23
24
25
1Q04 1Q07 1Q10 1Q13 1Q15
Investment rate
Current level of capacity utilization (RHS)
Strong private consumption; uneven investment recovery
Eurozone: private consumption and real labour income (% YoY)
Eurozone: investment rate and capacity utilization (%)
Source: Eurostat and BBVA Research Source: Eurostat and BBVA Research 12
Supportive fundamentals Recovery in machinery investment
Europe’s future
More favorable fiscal policy than in previous years
EMU: structural deficit adjustment 2010-2015 (%GDP)
• Almost neutral fiscal policy
in 2015
• European Commission
more careful in not forcing
pro-cyclical adjustments
• Relaxation of fiscal effort in
exchange for structural
reforms Source: BBVA Research and IMF
-1
1
3
5
7
9
Euro Germany France Italy Spain Portugal Ireland
Struct.Def. at the end of 2015
2015 2014 2013 2012 2011
Structural adjustment
13
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75%
76%
77%
78%
79%
80%
81%
82%
83%
84%
85%
0
10
20
30
40
50
60
70
March April May June July Aug. Sept.
ABSPP CBPP3 PSPP
Public sector bond purchases as % of total APP (rhs)
ECB Monthly purchases under the APP, bn EUR
The ECB remains firm on full implementation of QE and its willingness and ability to act if needed
• Markets are increasingly
pricing in more QE
• Despite being premature for
the ECB to take action, they
loose no chance (also
today!) to state that they are
very willing to act
• Risks are undoubtedly
towards a QE extension,
especially if the risk
scenario of low growth
materializes.
Some froantloading ahead of lower market liquidity
Source: Bloomberg and BBVA Research
14
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100,6
105,4
102,7
93,0
98,8
105,4
97,8
109,0
102,6
88
93
98
103
108
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
Ireland
GermanyUSA
France
UK
Eurozone
Spain
Portugal
Italy
Where do we stand after the crisis?
GDP per working age population (Q1-2008=100)
Sources: Eurostat, Haver and BBVA Research 15
Europe’s future
Where do we stand in spite of the crisis?
16
Western Europe
6,1%
Africa 6,5%
Europa Del Este
5,9%
Latin America
6,3%
North America
10,6%
Middle East 5,0%
Japan
1,0%
Oceanía
0,8%
Asia exJapón 57,8%
Asia-Pacífic will Explain around 75% of the increase in GDP between 2014 and 2024.
1980 2014
2045
Share of global demand over the next 10 years (6 months ago)
World growth gravity
Source: BBVA Research, IMF, Quah D., 2011, “The Global Economy’s Shifting Centre of Gravity”.
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France
• Labor markets • Product market and
services liberalization • Reducing size of public
sector and tax burden
Germany • Services
liberalization • Improving
infrastructure
Italy • Reforming public
sector and reduce tax burden
• Completing political reforms
Eurozone • Address demographic decline. A common immigration policy? • Further reform labor markets and promote labor mobility • Multiple reforms to enhance productivity growth
Structural reforms needed also in core countries
17
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18
Europe: Many risks pointing downwards aside from
the lack of advances in further integration
China
US
Geopolitical
Stagnation
Other EME’s
Political woes
Uncertainties about the magnitude of the deceleration, and on
the command onf the situation by Chinese authorities
Greece
Impact from China, low commodity prices, potential domestic
policy mistakes
Complications from Fed exit
Ukraine and Russia, ISIS and larger inflow of refugees
Failure to implement reforms
Elections and populist governments, complications from
refugee crisis
Lack of recovery and no ownership of the reforms 18
Europe’s future
• ISIS attacks in MENA
and Turkey while
many countries are
involved (Turkey,
Russia, Iran China)
Geopolitical Risks: A complex framework especially close to Europe
• Fighting intensified
in Ukraine
• Refugee crisis
escalates
BBVA conflict heatmap (Jan to Sep-15)
(Number of conflicts / Total events)
Source: www.gdelt.org and BBVA Research
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Europe’s future
BBVA Research Refugees Flows Map (1H 2015) (Number of media citations about refugees’ inflows and outflows)
Source: www.gdelt.org & BBVA Research
• The Middle East & North
Africa are facing complex
and multiple emergency
situations
• During 1S2015 around
350.000 refugees reached
Europe, now accelerating
• Defining a comprehensive EU action plan is crucial
The refugee crisis reinforces political rifts in Europe but also opens up a long-term growth opportunity
20
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3 Spain 21
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GDP
Spain: a tremendous adjustment
-8,0%
Jobs -17,5%
CA*
2008-2013
-0,1 pp of
GDP
2013-2016
Risk -328 pb +397 pb
+7,4%
+7,2%
+10,1 pp of
GDP
*/ Current Account 22
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1.4
2014
2.7
2016
Source: BBVA Research
3.2
2015
Spain: We are keeping our forecasts for 2015
%
% %
23
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Source: BBVA Research
• The Spanish economy grew by a little more than expected in the second quarter …
• … although a slowdown is expected in the third
Quarterly GDP growth
and MICA-BBVA forecasts
We are keeping our forecasts for 2015
Second
Quarter
Third Quarter
0.9% 1.0%
0.6-
0.7%
Observed
First Quarter
Forecast
24
Europe’s future
• Most growth is from both private and public domestic demand
• Machinery and equipment investment has surprised on the high side and continues to contribute to growth in 3Q15
Average contributions to GDP growth in
the second quarter
(Yoy growth rate)
We are keeping our forecasts for 2015
Private consumption and
machinery and equipment
investment
Public sector consumption
and residential investment
2.5
0.6 Rest
0.1
25
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For
Oil price fall
Impact on of oil at USD50 a barrel
• The oil price slide could add as much as one point to growth
(pp of average annual growth in 2015-16)
Source: BBVA Research
Spain EMU Global
1.0
0 . 7 0 . 6
26
Europe’s future
For
Euro exchange rate favours exports
Estimated effect on GDP after
one year of a 10% depreciation
in the EUR/USD rate
(pp of average annual growth in 2015-16)
Source: BBVA Research
Effect on Spanish GDP
+0.5%
0.7 0.6
0.5
0.6
0.5
0.4
0.4
0.4 0.2
0.4
0.3
0.3
0.5
0.3
0.5
0.5
0.7
27
Europe’s future
Contribution of public sector consumption to
growth
(pp of annualised quarterly growth)
First half
of 2015
0.81
First half of
2014
0.23
New retail lending transactions
(% YoY)
jul-04 jul-06 jul-08 jul-10 jul-12 jul-15
-35%
-25%
-15%
-5%
5%
15%
25%
35%
Jul-04 Jul-06 Jul-08 Jul-10 Jul-12 Jul-15
For
Expansionary fiscal and monetary policy
28
Europe’s future
Against
A somewhat less encouraging environment than before
Lower world
growth
Increase in the
risk premium
Less euro
depreciation
1 2 3
29
Europe’s future
Risks
Political uncertainty
• The Spanish risk premium is rising with respect to Italy
• The political uncertainty could have begun to have an impact on private spending
• Anecdotal evidence….
Source: BBVA Research based on INE and Eurostat 30
Spain/Italy risk premium differential
(basis points)
-30
-20
-10
0
10
20
30
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Pact to call electionson 27S
Pact to present a "single list"
Catalan elections
Europe’s future
Risks
Government deficit
• The risk of failing to meet
2015 budget targets is rising
Deficit of the public administrations (% GDP)
Target
Expected deficit
4.2
4.5 31
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Assessment
A long and deep crisis
Years passed until pre-crisis employment levels are attained
2Q91=100 1Q08=100
Current crisis
91 crisis
32
Europe’s future
Labour market
Internal flexibility Quality of contracts
Long-term unemployment
Competitiveness
Size of firms Exports
R&D
Public sector
Consolidation Tax reform Efficiency
Long run factors
Better education Training
Institutions
Continuing the process of structural reforms to ensure a sustainable and inclusive growth
33
Europe’s future
4 Banking Union and
challenges for the
financial system
34
Europe’s future
Level playing field: CRDIV, BRRD, DGS
No supervisory ring-fencing
Cross border resolution & Resolution
costs mutualized (private funds)
There is a new genuinely European institutional setup
Fragmentation has considerably eased but credit conditions still
depend on location
A lot has already been achieved with Banking Union 1.0
1. Single Rulebook
2. Single Supervision
3. Single Resolution
35
Europe’s future
Greece, first test to Banking Union 1.0: Very good progress but so much more needs to be done
FINANCIAL UNION
BANKING UNION 2.0
• Capital Markets
Union
• Sovereign Treatment
Revision*
FISCAL &
ECONOMIC UNION
• Formalized
economic
convergence*
• Fiscal
stabilization
function *
POLITICAL
UNION
• EZ Parliament
and Econ.
Government
• One external
representation
• EZ Treasury*
The Five Presidents Report shows the way forward
Immediate
priority:
1. European Deposit Insurance Scheme: for now, re-
insurance at European level
2. Fiscal backstop for the SRF * Second Stage: after 2017
GENUINE
EMU by
2025?
36
Europe’s future
Challenges for the European Financial System: Deleverage
Credit to the Private Sector (% GDP)
Source: BBVA Research based on ECB and Eurostat
0
20
40
60
80
100
120
140
160
180
France Germany Greece Italy Portugal Spain
Dec-09 Jun-15
• In some countries, credit is still far from its equilibrium level and credit composition is still not balanced (like real estate firms in Spain)
• The reduction of the credit stock has to be compatible with new credit to solvent demand
37
Europe’s future
Challenges for the European Financial System: Legacy from the crisis
Share of central bank funding in credit institutions’ liabilities (total liabilities excluding capital, %)
Source: BBVA Research based on ECB Risk Dashboard
0
2
4
6
8
10
12
14
France Germany Greece Italy Portugal Spain
Dec-09 Jun-15
44
• Liquidity: It is crucial to
restore the functioning of the
interbank and wholesale
markets (substituted by ECB
liquidity)
• Public participation in banks
should be reduced, as it can
bring inefficiencies
38
Europe’s future
Challenges for the European Financial System: Profitability has not returned to pre-crisis levels
Return on Equity (%)
Source: BBVA Research based on IMF GFSR Oct-15 and Bank of Spain
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
8,0
France Germany Greece Italy Portugal Spain
2009 2015*
• Why?: low interest rates, risk aversion, stricter regulation and supervision, lower liquidity and competition from non-bank players
• What can be done?: Cost cutting has to come from a significant change, like digital banking or further consolidation (first domestic and second pan-European)
39
Europe’s future
Europe’s future
New York, Oct 22 2015
40
Europe’s future
China: Economic growth, alternative indicators (YoY, %) Source: BBVA Research
In China a sharp downward trend in economic indicators puts in doubt the soft-landing scenario
• Alternative measures of
economic growth (Li
Kequian) and synthetic
leading indicators (OECD)
are slowing faster than GDP
…
• … However, both might
overweight manufacturing
activities vs services
activities
90
92
94
96
98
100
102
104
0
3
6
9
12
15
18
21
24
Ma
r-0
5
Dec-0
5
Sep
-06
Jun-0
7
Ma
r-0
8
Dec-0
8
Sep
-09
Jun-1
0
Ma
r-1
1
Dec-1
1
Sep
-12
Jun-1
3
Ma
r-1
4
Dec-1
4
Sep
-15
Official GDP Li Kequian growth OCDE Leading Indicator (RHS)
Europe’s future
In China, the rebalancing to services and urban
employment goes on
0
2
4
6
8
10
12
14
16
18
20
38%
40%
42%
44%
46%
48%
50%
52%
2006 2010 2014 2015 (1st half)
Industry Services
Industry (YoY, rhs) Services (YoY, rhs)
China: sectorial breakdown GDP % Source: BBVA Research
38%
40%
42%
44%
46%
48%
50%
52%
2006 2010 2014
China: urban employment, % total GDP % Source: BBVA Research
Urban
Employment 2012 2013 2014
Annual change,
millions 11.9 11.4 10.7
GDP, % 2013 2014 2015 2016
current
forecast7,7 7,3 6,7 6,2
Europe’s future
Still, risks are clearly biased to the downside as the
challenges China faces are huge
China: debt and growth Source: BBVA Research
• China turned on the taps in
2008, pushing up debt
leading to inefficient
investments, and perhaps
financial bubbles
4,0
5,5
7,0
8,5
10,0
11,5
13,0
14,5
75
95
115
135
155
175
195
215
2007 2008 2009 2010 2011 2012 2013 2014 2015(f)
2016(f)
Non financial Private Sector. Debt, % GDP (LHS)
Economic growth, % y/y GDP (RHS)
• The risk: tensions between
decentralizing economic
decisions and keeping
political control
Europe’s future
Germany: robust domestic fundamentals
• Private consumption
continues to grow at rates
consistent with favorable
labour market conditions
• Lower global demand
hampers the growth of
exports
• The uncertainty caused by
geopolitical conflicts could lead
businesses to further delay
their investment plans to 2016 Source: Eurostat and BBVA Research
2015 2014
1.6% 1.5%
2016
1.9%
GDP growth
(%)
44
Europe’s future
Germany: solid labour market
• The positive divergence
with the average of the area
is gradually expanding
• Increased public investment
would help correct the
current account surplus
• The competitive advantages
of German companies from
the rest of EMU have been
reduced, mainly since 2012.
Deviation from EZ18 average (pp)
Source: BBVA Research and Eurostat
+18.2pp
-2.5pp +4.8pp
GDP per working
age population
Public
consumption
ULC evolution
2008-2014
45
Europe’s future
2014
France: doubts in 2015 but more balanced growth expected in 2016
• The recovery in 2015 and
2016 will be based on
domestic factors,
especially consumption
• The delay in the
adjustment of the deficit
should also help
• The loss of competitiveness
is the main problem in the
medium term Source: Eurostat and BBVA Research
2015
0.2%
1.3%
2016
1.7%
GDP growth
(%)
46
Europe’s future
France: the easing of fiscal targets will help the economy recover
• Stable income above
average
• Timid reforms underway
• France has failed to correct
the current account deficit in
recent years, as other
countries did
Deviation from EZ18 average (pp)
Source: BBVA Research and Eurostat
GDP per working
age population
Public deficit Current
account
balance
+12.4pp
+1.6pp
-4.6pp
47
Europe’s future
Italy: more optimism, and moderate growth in 2015
• We continue to expect a slow recovery in 2015 (0.7%), driven by exports and investment
• Investment will continue to improve as reforms aimed at improving the business environment are implemented
• The declaration of unconstitutionality of cost-cutting measures can slow fiscal adjustment
Source: Eurostat and BBVA Research
-0.4%
0.7%
1.3%
GDP growth
(%)
2015 2014 2016
48
Europe’s future
Italy: reforms are coming; they are badly needed to increase the growth potential
• Income has deteriorated
sharply in the past two decades
• A slow privatization
program is delaying debt
reduction (132.1% of GDP
in 2014)
• The private sector has been
able to correct the high debt
imbalance more rapidly
Deviation from EZ18 average (pp)
Source: BBVA Research and Eurostat
GDP per working
age population
Public debt Private debt
-9.5pp
+40.2pp
-4.4pp
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