Spain Consumption Outlook

Consumption Outlook

Madrid, 29 May 2012

Consumption Outlook, 29 May 2012

Key themes

1

2

3

Europe decoupling from the global economy growth while the region continues to await a long-term plan to boost economic activity and allow sovereign risk to be spread in exchange for structural reform and better coordination

Spain's GDP is still expected to contract in 2012 (by 1.3%), before gradually recovering in 2013. However, this outlook now appears less certain

Building up confidence now depends on the design, execution, and communication of a credible set of reforms

Weaker drivers point to declining consumption in 2012 and the first half of 2013, especially for durable goods

Lingering financial stress and high default levels, and, in particular, the expectation of weak demand do not point to an increase in consumer credit in the short term

Worsening expectations by households account for 80% of the fall in demand for consumer credit in the current crisis

4

5

6


Section 1

International environment: continued global growth and persistent risks in Europe

Section 2

Spain: recession confirmed, although it is not worsening. Ongoing reforms will increase growth

Section 3

Consumption: weaker drivers point to declining consumption in 2012 and the first half of 2013

Section 4

Demand for durable goods: is there any?

Contents


Section 1

Europe decoupling from global growth

GDP growth (% yoy)Source: BBVA Research

The debt crisis continues, with Portugal under the spotlight and concerns about Spain

High levels of financial stress in Europe, with a risk of a tightening of credit

Stability Treaty: towards Maastricht 2.0More emphasis on growth

Expansive, yet differing, monetary policies by the Fed, the Bank of Spain, and the ECB

A slow, disparate, and vulnerable recovery

3.6

4.0

0.9

2.3 2.2

5.8

6.4

-0.2-1

0

1

2

3

4

5

6

7

2012

2013

2012

2013

2012

2013

2012

2013

Global EMU US EAGLES

May-12 Feb-12


Significant progress... ... Although significant challenges remain

Insufficient progress → Risk continues to rise

Restructuring Greek debt and moving up the ESM

Provision of long-term liquidity by the ECB

Reforms in Portugal, Spain, and Italy

Approval of the Stability Treaty

1. Uncertainty in Greece

3. Growth plan

4. A clear roadmap to "another" fiscal union

2. Need for an effective firewall

ESM may indirectly contribute to capitalising financial institutions 5. Need for greater financial integration

Section 1

The European crisis continues


Section 1

1. Uncertainty in Greece and Portugal

Greece and Portugal: public debt forecasts (% GDP)Source: BBVA Research and IMF

Greece: ambitious targets, but uncertainty following elections, and a deep recession

Portugal: despite significant progress, there is no guaranteeing Greece's return to capital

markets in 2013

The risk of setbacks remains high

40

60

80

100

120

140

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180

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Portugal Greece** Scenario for Greece: assumes 95% of bondholders will participate in the haircut, 3% growth in 2015, and a primary surplus at 4.5% of GDP starting in 2014 (2.4% primary deficit in 2011)


Section 1

2. Need for an effective firewall

New lending capacity: €500bn(+ €200bn already committed by the EFSF)

The EFSF can continue to lend through mid-2013, so as to enable the capitalisation of the ESM

What is more important is that the available funds be used efficiently: they should not crowd out private demand

The increase in IMF funds (€330bn)

The debate centres on the amount of resources available, but it encompasses much more:


Section 1

3. Agenda for growth

Clear roadmap for the future of EMU

Balance between growth and austerity:reforms in exchange for a strategy focused on growth

Short-term objectives: avoiding the risk of an austerity-recession downward spiral and clearing up the uncertainty over the solvency of

sovereign debt

Gradual fiscal adjustment with multi-year plansFocus on structural deficits as called for in the Treaty

An agenda for growth that is compatible with fiscal adjustment


Section 1

4. Greater progress towards fiscal union

From the Stability Treaty...

Despite difficulties in estimating the volume, this places the right emphasis on structural

adjustment...

...but also raises doubts about how and when to apply the "extraordinary circumstances" clause

Not ambitious enough to elicit an assertive move from the ECB hardliners and Germany?

...to fiscal union

Eurobonds: a good mechanism for mutualising risk

The "blue" and "red" bond proposalmaintains a degree of market discipline

A union with temporary (rather than permanent) transfers would be sufficient


Banking system: Euro-zone sovereign bondholdings (% of assets)Source: BBVA Research based on ECB data

Indirect ECB intervention in the sovereign bond market via banks

Increased bank exposure to sovereign debt heightens the potential negative for feedback

between the two

Emphasises the need for a definitive solution to the doubts about sovereign solvency

Objective: to eliminate interaction of sovereign risk and bank risk

4,0

4,5

5,0

5,5

6,0

6,5

7,0

7,5

8,0

Jan

-10

Mar

-10

May

-10

Jul 1

0

Sep

-10

No

v-10

Jan

-11

Mar

-11

May

-11

Jul-1

1

Sep

-11

No

v-11

Jan

-12

Mar

-12

Spain Italy

Section 1

5. Greater financial integration


Section 1


Section 2


Section 3

Consumption: Weaker drivers point to declining consumption in 2012 and the first half of 2013

Section 4


Contents


Section 2

Main changes in the economic scenario in 2012

Main drivers of the macroeconomic scenarioSource: BBVA Research

New

fact

ors

Growth forecast 3 months ago

2012 growth forecast still intact, but uncertainty increases -1.3%

3. Increased financial stress

4. Unprecedented fiscal adjustment due to the deviation in 2011

5. LEP and the Supplier Payment Plan

6. Labour market reform and financial reform

-1.3%

1. 1Q and 2Q confirm the scenario

2. Rising oil prices


Section 2

1. Available data confirm the scenario

Spain: real GDP growth and forecasts based on MICA-BBVA model (%, qoq)Current forecast: 25 MaySource: BBVA Research The Spanish economy entered a technical

recession in 1Q12...

Employment continues to be hindered by the negative outlook for growth

Published data indicate that 2Q12 growth is likely to have remained negative

...although the rate of slowdown did not worsen in comparison with 4Q11

-1.5

-1 .0

-0.5

0.0

0.5

1.0

1 .5

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2Q0

9

3Q0

9

4Q

09

2Q10

3Q10

4Q

10

1Q11

3Q11

4Q

11

1Q12

2Q12

CI at 20%

MICA-BBVA point estimation (55% of data for 2Q12)

Actual (BBVA Research official forecast for 2Q12)

2Q11

1Q10

CI at 40% CI at 60%


Section 2

2. Hike in oil prices

Spain: impact of recent oil price recovery on business activity and prices (deviation from previous scenario)Source: BBVA Research

Rise in oil prices result of both supply-side and demand-side factors

No contractive reaction expected in monetary policy

Will have a temporary effect on long-term trends

Negative, but limited, impact

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

2012 2013 2012 2013

GDP (% yoy) CPI (% yoy)

Supply Precautionary demand Global demand Total


Section 2

3. Increased financial stress

Spain: balance of payments and capital flows (Cumulative 12-month, % of GDP)Source: BBVA Research based on Bank of Spain data

FDI and other capital flows entering the country were financing the current account deficit

before the onset of the financial crisis

Starting in 2007, other capital inflows (bonds, loans, etc.) turned highly volatile...

... which makes the economy dependent on flows through the Eurosystem

It is liquidity, not solvency

In light of the lack of liquidity, the main risk lies in self-fulfilling expectations

-15

-10

-5

0

5

10

15

Dec

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-07

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8

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r-0

9

Dec

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Au

g-1

0

Ap

r-11

Dec

-11

FDI Other Eurosystem Current account


Section 2

4. Unprecedented fiscal adjustment due to the deviation in 2011

Spain: adjustment in Public Administration deficits (% of GDP)Source: BBVA Research

Fiscal adjustment measures equivalent to 5.1% of GDP are required in to reach the -5.3% target

for 2012

The 2012-2015 Stability and Growth Programme contains measures that make meeting of the central government target perfectly feasible...

... with the focus very much on the Autonomous Communities

Additional manoeuvring room: as-yet-unspecified measures of the Autonomous

Communities, or privatisations

3.6

2.3

0.4

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2011 (Deficit: 8.9%) 2012 (Target: -5.3%) 2013 (Target: -3.0%)

Cycle-adjusted Cyclical deterioration

Discretionary measures Structural deterioration Total


The impact on 2012 GDP of the Government's programme to settle administrations' unpaid supplier invoices* (pp of GDP)

* Max and Min depend on agents' level of liquidity restrictionSource: BBVA Research based on MINHAP data

Important liquidity injection

Section 2

5. Supplier payment programme

The Government is to inject the equivalent of 2.5% of GDP (€27bn) to pay off local and

regional governments' debts with suppliers

The impact on growth could be significant, given that these companies are currently

experiencing liquidity restrictions

The final impact will depend to a large extent on current uncertainty

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

20% 33% 50%

Percentage of debts discounted


Spain: response to labour reform (% deviation from trend)Source: BBVA Research

The challenge: from adjustment to growth

Short-term objective: to prevent further job losses→ change in working hours + labour flexibility and better-organised production

To stimulate growth where it is weak and to take advantage of it in more buoyant sectors

A redistribution of production drivers towards the more dynamic companies and sectors

(export sector)

To eliminate barriers to internal growth via a more favourable regulatory framework

Section 2

6. Labour Reform

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0

2

4

6

8

10

12

14

16

18

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

GDP Employment


29% 29% 29%18% 18% 18%

14% 14%

7%

30%

17%27%

10% 10%

0%

10%

20%

30%

40%

50%

60%

Dis

tres

sed,

Dec

-11

Dis

tres

sed,

Feb

-12

Dis

tres

sed,

May

-12

Non

-dis

tres

sed,

Dec

.-11

Non

-dis

tres

sed,

Feb

-12

Non

-dis

tres

sed,

May

-12

Tota

l, D

ec.-1

1

Tota

l, Fe

b -12

Tota

l, M

ay-1

2

Current coverage Additional provisions Capital cushion

Exposure: €123bn Exposure: €307bnExposure: €184bn

Real-estate assets: additional provisions and capital cushionSource: BBVA Research based on MEC data

The new measures represent a step forward

More realistic assumptions in real-estate valuations and larger writedowns

The impact of the new requirements on shaping the sector will depend on how they are

applied

Taking prompt action in insolvent institutions and making the cost clear

Section 2

6. Financial-System Reform


Section 1


Section 2


Section 3


Section 4


Contents


Key drivers of consumption

Disposable income 1. Job destruction and wage

moderation2. Public sector deleveraging

Propensity to save / consume

3. Uncertainty4. Liquidity pressure and

return on savings

Section 3

Household consumption

Possibility of borrowing 5. Private sector

deleveraging

Spain: private consumption (%)Source: BBVA Research based on INE data

-5

-4

-3

-2

-1

0

1

2008 2009 2010 2011 2012 2013

Private consumption GDP


Spain: employment and unemployment rates (%)Source: BBVA Research based on INE data

Job destruction and wage moderation

Section 3


The economic slowdown has caused greater job destruction

Labour-market reform might facilitate a rebalancing adjusting the extensive margin

(employment) and the intensive margin (hours and wages) and reduce segmentation…

… but will not prevent the number of employed from continuing to decline in the short term

1

8

11

14

17

20

23

26

-8

-6

-4

-2

0

2

Mar

-08

Jun

-08

Se

p-0

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c-0

8

Mar

-09

Jun

-09

Se

p-0

9

De

c-0

9

Mar

-10

Jun

-10

Se

p-1

0

De

c-10

Mar

-11

Jun

-11

Se

p-1

1

De

c-11

Mar

-12

20

12

20

13

Employment Unemployment rate (rhs.)


Spain: gross disposable household income (%)Source: BBVA Research based on INE data

Public sector deleveraging

Section 3


Spain: effect of higher tax rates on GDP(Permanent increase, equivalent to 1% of GDP collected)Source: BBVA Research. REMS simulations, effect after two years.

0.0Consumption

Personal income tax

Social Security

Share capital

-0.2

-0.4

-0.6

-0.8

-1.0

-1.2

-1.4

-0.75

-0.84

-1.0

-1.22

Deterioration of labour market + fiscal consolidation

Declining disposable income over the entire forecast period

2

-8

-6

-4

-2

0

2

4

6

8

10

Mar

-08

Jun

-08

Sep

-08

Dec

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Mar

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Sep

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2012

2013

Nominal Real


Spain: impact of decrease in confidence on growth in consumer spending*(%)Source: BBVA Research based on INE data

Increased uncertainty

Section 3


Spain: household consumption, GDP and confidence indicator (t-1) (%)Source: BBVA Research based on INE and EC data

Uncertainty is expected to remain high Purchases are being postponed

3

-6

-4

-2

0

2

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6

8

Dec

-86

Dec

-87

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-89

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-93

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-95

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Dec

-00

Dec

-01

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Dec

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Dec

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Dec

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-50

-43

-36

-29

-22

-15

-8

-1

6

Consumption (%, yoy, lhs.) GDP (%, yoy, lhs.)

Household financial situation, next 12-month (t-1, rhs.)

-0.3-0.3

-0.2

-0.1

0.0 0.0

-0.40

-0.30

-0.20

-0.10

0.00

0.10

1st year 2nd yerar 3rd year

-5.1 points, permanent -5.1 points, temporary

*Confidence indicator used is households’ perception of their future economic situation


Spain: promissory notes and deposits by non-financial corporates and households (% yoy)Source: Bank of Spain

Liquidity pressures and return on savings

Section 3


Spread between rates offered on term deposits and 12m Euribor (pp)Source: BBVA Research based on INE and ECB data

Liquidity pressures

Encourages savings to the detriment of consumption

Higher remuneration from private-party liabilities

(first deposits and, later, promissory notes)

4

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

Mar

-07

Sep

-07

Mar

-08

Sep

-08

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Spain Germany

-3

-2

-1

0

1

2

3

4

5

6

Jan

-11

Mar

-11

May

-11

Jul-1

1

Sep

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No

v-11

Jan

-12

Deposits (non-financial corporates + households) and promissory notesDeposits (non-financial corporates + households)


Consumer credit (% GDP)(*) Including securitisationsSource: BBVA Research based on INE, Bank of Spain and European Commission data

Private sector deleveraging (l)

Section 3


Household credit* (% GDP)(*) Consumer and other + housing, including securitisationsSource: BBVA Research based on INE, Bank of Spain and European Commission data

Household credit: far from converging with the EMU (24 GDP points) Consumer credit: deleveraging well underway

5

0%

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100%

200

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200

1

200

2

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9

2010

2011

Mar

-12

Spain* EMU Ireland

32pp 24pp

0%

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16%

200

0

200

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9

2010

2011

Mar

-12

Spain* EMU Ireland

3.4pp

-0.2pp


Private sector deleveraging (lI)

Section 3


Spain: response of consumption to a negative stimulus from lending, by type of shock(Deviation in annual growth from core scenario, pp)The stimulus has tapered off at 1 pp of credit in the first quarter of the year.Source: BBVA Research

… Deeper and longer-lasting if it results from lower demand for credit

Will continue to have a considerable impact on consumption ...

The deleveraging process will be long

5

-0.8

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-0.2

0.0

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Quarters

Credit demand Credit supply


Section 3


BBVA Business Trend Survey: perception of credit supply and demandBalance of answers: (<0 indicates a worsening)Source: BBVA Research

Supply and demand for credit have fallen (more

than expected) over the last quarter:

• Slack consumption and weak fundamentals have affected demand for credit, with a higher rate of contraction in 1H12

• Slight relaxation of lending conditions, although insufficient to avoid a contraction in supply

Results of BBVA BTS

Outlook for 2H12: somewhat more favourable from the standpoint of supply of than demand

for credit

Private sector deleveraging (lII)5

-90

-75

-60

-45

-30

-15

0

15

2H10 1H11 2H11 1H12 Outlook 2H12

Supply Demand


Section 3


Spain: contributions to yoy growth in consumer credit (%)Source: BBVA Research

∇ 1% in consumer spending → ∇ 1.4% in demand for consumer credit in the long term (ceteris paribus)

+100bp in interest rates on loans → ∇ 3.6% in demand for consumer credit

+1pp in unemployment rates → ∇ 4.6% in demand for consumer credit

Worsening expectations of households –reflected in rising unemployment rate- account for about 80% of the decline in consumer credit

during the current crisis

What are the reasons for the slowdown in demand?

Private sector deleveraging (lV)5

-24%-20%-16%-12%-8%-4%0%4%8%

12%16%

20%

Mar

-02

Dec

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Sep

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Jun

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Private Consumption Real rates Unemployment

Other Plan 2000E Consumer Credit


Section 3


Spain: interest rates on new consumer loans (%)Through May 10, one-year interest rate and the weighted average rate include credit card transactionsSource: BBVA Research based on Bank of Spain data

Spain: household default rate (%)Source: BBVA Research based on Bank of Spain data

Lingering financial pressures + expectation of weak demand + continued high default rates do not point to a recovery in consumer credit in the short term

Private sector deleveraging (V)5

0

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4

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Ap

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Jul-1

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Ap

r-11

Jul-1

1

Oct

-11

Jan

-12

Weighted average rate Up to 1 year

More than 1 year and up to 5 years More than 5 years

0%

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2%

3%

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5%

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8%

Mar

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Jun

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Dec

-11

Home purchases and improvements Durable consumer goods

Other household financing Total households


Section 3


Spain: financial burden of households, official rates and core inflation (%)Source: BBVA Research based on INE, ECB and Eurostat data

Fragile economic situation + lack of demand-side inflation pressures will keep interest rates at

historical lows …

… reducing the financial burden of households and making resources available for

consumption

Private sector deleveraging (VI)5

0%

4%

8%

12%

16%

20%

Mar

-08

Jun

-08

Sep

-08

Dec

-08

Mar

-09

Jun

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Sep

-09

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Mar

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Sep

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Dec

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Mar

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Jun

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Sep

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-11

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-12

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-13

0%

1%

2%

3%

4%

5%

Financial burden (% GDHI, lhs.)Official interest rate (%, rhs.)EMU core inflation (rhs.)


Section 1

International environment and the Spanish economy: once again in recession and coping with the challenge of preventing massive job destruction

Section 2


Section 3


Section 4


Contents


Section 4

Demand for durable goods

Spain: perception of purchase timing(Difference of percentages between positive and negative responses, MM3)Source: BBVA Research, based on Millward Brown data

Spain: consumer goods availability(SWDA data, quarterly averages, Jan-08 = 100)Source: BBVA Research based on MEC data

Domestic demand for durables remains weak … Did it hit bottom in 2011?

0

20

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100

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Consumer goods Food productsDurables Other non-durable

-75

-60

-45

-30

-15

0

15

Mar

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May

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Jul-0

9

Sep

-09

No

v-0

9

Jan

-10

Mar

-10

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-10

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0

Sep

-10

No

v-10

Jan

-11

Mar

-11

May

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Jul-1

1

Sep

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No

v-11

Jan

-12

Mar

-12

Small appliances Music equipment or TVsLarge appliances ComputersMobile devices FurnitureCars Average


Section 4


Spain: real exports of goods(SWDA data; 1Q09 = 100)Source: BBVA Research based on MEC data

Unlike in 1H11, foreign demand for durable goods has not offset sluggish domestic demand in 4Q11

and 1Q12

Consumer electronics, furniture and automobiles: better relative performance

Two-wheeled vehicles and electrical appliances: higher-than-average decline

40

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Mar

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Total goods AppliancesConsumer electronics Computer equipmentCars Motorcycles and mopedsFurniture Durables (*)


Section 4


Spain: car registrations(SWDA data)Source: BBVA Research based on ANFAC and Ganvam data

Spain: car registrations by sales channel (contribution to % yoy)Source: BBVA Research based on ANFAC and Ganvam data

NCs rose in 1Q12 (+5.5% qoq SWDA) against a backdrop of falling prices …

… but then plummeted again in April: -14.7% mom

Cars: changing composition of sales by channel …a

Rental companies are primarily responsible for recent fluctuations in sales (fleet renewals)

-40

-30

-20

-10

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30

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Ap

r-0

9

Jul-0

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r-10

Jul-1

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-11

Ap

r-11

Jul-1

1

Oct

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Jan

-12

Ap

r-12

-80

-60

-40

-20

0

20

40

60

% mom % qoq % yoy (rhs.)

Plan 2000E -60

-40

-20

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60

80

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-09

Au

g-0

9

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r-10

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g-1

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80

90

Private Corporate Rental agenciesTotal Weight of private channel (rhs.)

Plan 2000E


Spain: Used vs. new carsSource: BBVA Research based on ANFAC, IEA and Ganvam data

Section 4

Demand for durable goodsCars: … and by tpea

Demand for used vehicles continued to rise: 3.4% en 2011 (57.7% between private parties)

Slight correction in 1C12: -3.7% yoy

used/new = 2.1 in 2011 (2.0 in 1C12) …

… In line with Germany (1.8), Italy (2.1) or France (2.3)

0

250

500

750

1000

1250

1500

1750

2000

2008 2009 2010 2011 Jan-Apr 2011

Jan-Apr 2012

Th

ou

san

ds

of c

ars

1.0

1.2

1.3

1.5

1.6

1.8

1.9

2.1

2.2

Used car sales New car registrations Used/New (rhs.)


Section 4


Spain: breakdown of all cars by age (% of total)Source: BBVA Research, using DGT data

Cars more than 10 years old (% of total)Source: BBVA Research based on ANFAC, IEA, ACEA and OICA

The breakdown of cars has shifted to the right

Cars: an ageing fleet… along with the rest of Europea

Convergence with Europe against this backdrop of overall ageing of the vehicle fleet

0%

2%

4%

6%

8%

10%

12%

14%

+ o

f 2020191817161514131211109876543210

Age of cars

Dec-11 Dec-06

-12.5pp

+9.6pp

+2.0pp

0

10

20

30

40

50

60

UK

Bel

giu

m

Fran

ce

Ger

man

y

Spai

n (2

010

)

Spai

n (2

011

)

Au

stri

a

Ital

y

Net

her

lan

ds

Den

mar

k

Swed

en

Po

rtu

gal

Gre

ece

Fin

lan

d

0

2

4

6

8

10

12

Cars more than 10 years old, % (2010)Average for selected countriesIncrease 2005-10, pp. (rhs.)


Section 4

Demand for durable goodsCars: outlooka

Spain: car registrations(Annual total and % change)Source: BBVA Research and ANFAC

Drivers of car registrations: complex scenario Some 750 thousand cars in 2012 and 800 thousand in 2013

Spain: forecasts for drivers of car registrationsSource: BBVA Research based on INE, MEC and Bank of Spain data

-20

-15

-10

-5

0

5

10

15

20

2008 2009 2010 2011 2012 2013-8

-6

-4

-2

0

2

4

6

8

Real GDP pc (% lhs.)Relative price of fuel (% lhs.)Change in unemployment rate (pp. rhs.)Change in average interest rate on new consumer credit op. (pp., rhs.)

0

300

600

900

1200

2008 2009 2010 2011 2012 2013

Th

ou

san

do

fcar

s

-30

-20

-10

0

10

%yo

y

Actual Forecast

Actual % yoy (rhs.) Forecast % yoy (rhs.)


Section 4

Demand for durable goodsTwo-wheeled vehicles: going downhillb

Spain: registrations of mopeds and motorcycles (SWDA data, % qoq)Source: BBVA Research based on Anesdor and Bank of Spain data

Deterioration of drivers (disposable income, unemployment—especially among young

people—and risk aversion)

Regulatory changes: increase in the licence age for mopeds to 15 and the transposition of

Directive 2006/126/CE almost four years ahead of European requirements

What are the reason for lower demand?

In 2012 some 100 thousand mopeds might be registered (125 thousand in 2011)

-50

-40

-30

-20

-10

0

10

20

30

Mar

-08

Jun

-08

Sep

-08

Dec

-08

Mar

-09

Jun

-09

Sep

-09

Dec

-09

Mar

-10

Jun

-10

Sep

-10

Dec

-10

Mar

-11

Jun

-11

Sep

-11

Dec

-11

Mar

-12 -5

-4

-3

-2

-1

0

1

2

3

Registrations Total cars (rhs)

Plan Moto-E


Section 4

Demand for durable goodsFurniture: drop in line with the average decline for durablesc

Spain: furniture sector turnover(SWDA data, % qoq)Source: BBVA Research based on INE data

Downside exports: -18.6% SWDA between 4Q11 and 1Q12

Perennial deterioration in investment in housing:

-10.1% SWDA between 4Q11 and 1Q12

Two underlying reasons:

BBVA Research estimates:• ∇ of 1% qoq in nominal furniture exports →∇ approx. 0.7% qoq in turnover

• ∇ of 1% qoq in nominal investment in housing → ∇ decline in turnover 0.6% qoq, cumulative

-20

-15

-10

-5

0

5

10

Mar

-08

Jun

-08

Sep

-08

Dec

-08

Mar

-09

Jun

-09

Sep

-09

Dec

-09

Mar

-10

Jun

-10

Sep

-10

Dec

-10

Mar

-11

Jun

-11

Sep

-11

Dec

-11

Mar

-12

Furniture Durable consumer goods Consumer goods


Section 4

Demand for durable goodsMajor household appliances: falling consumption, rising post-saled

Spain: sales of appliances by product family(% yoy of units)Source: BBVA Research based on ANFEL data

Spain: consumer prices for household appliances(Jan-08 = 100)Source: BBVA Research based on INE data

Jan-Apr 2012: -12.0% yoy; turnover: -14.9% yoyWashing machines and dishwashers: smaller

relative declineGeneralised fall in prices, except for repair

services (+17.0% since Jan-08)

-40

-30

-20

-10

0

10

20Refrigerators

Freezers

Washing machines

Dryers

DishwashersCookers

Ovens

Counters

Total

2010 2011 Jan-Apr 2011 Jan-Apr 2012

88

96

104

112

120

Jan

-08

Ap

r-0

8

Jul-0

8

Oct

-08

Jan

-09

Ap

r-0

9

Jul-0

9

Oct

-09

Jan

-10

Ap

r-10

Jul-1

0

Oct

-10

Jan

-11

Ab

r-11

Jul-1

1

Oct

-11

Jan

-12

Ap

r-12

Total appliances Refrigerators, washing mach. and dishwashersCookers and ovens Other appliancesAppliance repairs General


Section 4

Demand for durable goodsBrown line products: a promising half year following a year to forgete

Spain: real retail sales of brown line items (SWDA data, % qoq)Source: BBVA Research based on Eurostat data

Spain: consumer prices forbrown line items (Jan-08=100)Source: BBVA Research based on INE data

4Q11 + 1Q12: consumer electronics -8.5% SWDA; ITC -5.1% SWDA

Eurocup and Olympics: will increase sales in 2Q and 3Q

Persistent deflation (except in telephony) contributes to raise penetration rate

-12

-10

-8

-6

-4

-2

0

2

4

6

8

Mar

-08

Jun

-08

Sep

-08

Dec

-08

Mar

-09

Jun

-09

Sep

-09

Dec

-09

Mar

-10

Jun

-10

Sep

-10

Dec

-10

Mar

-11

Jun

-11

Sep

-11

Dec

-11

Mar

-12

ITC Consumer-electronics Non-food products

40

50

60

70

80

90

100

110

Jan

-08

Ap

r-0

8

Jul-0

8

Oct

-08

Jan

-09

Ap

r-0

9

Jul-0

9

Oct

-09

Jan

-10

Ap

r-10

Jul-1

0

Oct

-10

Jan

-11

Ap

r-11

Jul-1

1

Oct

-11

Jan

-12

Ap

r-12

Telephone equipment Video and sound equipment

General Cameras and movie equipment

Computer equipment


Key themes

1

2

3

Europe decoupling from the global economy growth while the region continues to await a long-term plan to boost economic activity and allow sovereign risk to be spread in exchange for structural reform and better coordination

Spain's GDP is still expected to contract in 2012 (by 1.3%), before gradually recovering in 2013. However, this outlook now appears less certain

Building up confidence now depends on the design, execution, and communication of a credible set of reforms

Weaker drivers point to declining consumption in 2012 and the first half of 2013, especially for durable goods

Lingering financial stress and high default levels, and, in particular, the expectation of weak demand do not point to an increase in consumer credit in the short term

Worsening expectations by households account for 80% of the fall in demand for consumer credit in the current crisis

4

5

6


Consumption Outlook

Madrid, 29 May 2012


Spain: restructuring processes in major appliances and brown products sectors (2009-12)* D: distributing company; M: manufacturing companyShaded cells: changes since publication of last Economic Outlook. ConsumptionSource: BBVA Research based on Alimarket and European Monitoring Centre on Change data

Appendix

Appendix 1

Company Type of company* Type of restructuring

PC City D (-) Store closure and workforce reduction

Darty D (-) Store closure

Miró D (-) Store closure and workforce reduction

Unecsa D (-) Voluntary bankruptcy

Urende D (-) Store closure and workforce reduction

Urende D(-) Approval of closing of stores and worforce reduction

Unecsa D (-) Closing of storesFibertel D (-) Voluntary bankruptcyMedia Markt D (+) Opening of storesEcomputer D (+) Opening of stores

Worten D(+) Opening of stores (+ partial absorption PC City)

Fnac D (+) Opening of storesFnac D (+) Opening of storesWorten D (+) Opening of storesApple D (+) Opening of storesElectro merkat D (+) Opening of storesTristar Spain D

(+) MergerTopcom Iberia D

Company Type of company* Type of restructuringInfinity System F,D (-) Temporary workforce reductionSanyo F (-) Plant closureElectronic Devices Manufacturer

F (-) Liquidation

Engel Axil F (-) Voluntary bankruptcy

BSH F (-) Workforce reduction

Sharp F (-) Temporary workforce reduction

Daewoo F(-) Workforce reduction following extinction of company

Daewoo F (-) Sale of plantDi4 F (-) Voluntary bankruptcyRimax innovation F,D (-) Liquidation

NPG F (+) Expansion

Conceptronic F(+) MergerDigital Data

CommunicationsF

Spain Consumption Outlook

Economy & Finance

Transcript of Spain Consumption Outlook