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The global economic cycle is improving. Expansion in developed economies is offsetting the slowdown in emerging markets. These are risks, but.are not systemic. Spain: upside bias in growth, which will be above 1% in 2014 and around 2% in 2015, but reforms must continue. Private consumption is undoubtedly recovering, particularly durable goods. Causes: better fundamentals, more financing, less uncertainty and the PIVE programme (incentivising purchase of energy-efficient cars). Substituting national products for imported goods, as a result of changing preferences, accounts for 60% of the fall in consumption imports during the crisis. Lower-income households are bearing higher inflation because they concentrate their consumption on products whose prices are more rigid to the downside.
Citation preview
1H14
BBVA Research – Madrid, 17 June 2014
Consumption Outlook
Consumption Outlook 1H14 / 17 June 2014
Key Messages
The global economic cycle is improving. Expansion in developed economies is offsetting the slowdown in emerging markets. There are risks, but these are not systemic
Spain: upside bias in growth, which will be above 1% in 2014 and around 2% in 2015 …
… but reforms must continue
Private consumption is undoubtedly recovering, particularly durable goods. Causes: better fundamentals, more financing, less uncertainty and the PIVE programme (incentivising purchase of energy-efficient cars)
Substituting national products for imported goods, as a result of changing preferences, accounts for 60% of the fall in consumption imports during the crisis
Lower-income households are bearing higher inflation because they concentrate their consumption on products whose prices are more rigid to the downside
1
2
3
4
5
6
Page 2
Consumption Outlook 1H14 / 17 June 2014
Section 1
The world economy improves
Section 2
The recovery of the Spanish economy accelerates, but further reforms are required Section 3
Private consumption is undoubtedly recovering…
Section 4
… particularly in (some) durable goods
Section 5
On Spanish households’ consumption habits: import substitution and inflation differentials between households
Index
Page 3
Consumption Outlook 1H14 / 17 June 2014
Section 1
The world economy improves
World GDP growth (Annualised quarterly % rate based on BBVA-GAIN) Source: BBVA Research
World economic growth remains at over 3%
The expansion of developed economies offsets the slowdown in emerging
markets…
… despite the improvement in their financial conditions
Page 4
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
Q2-13 Q3-13 Q4-13 Q1-14 Q2-14
Consumption Outlook 1H14 / 17 June 2014
Section 1
The world economy improves
US: growth in line with forecasts (2.5%) The Fed will end tapering by the end of 2014 and will start to raise interest rates
in the second half of 2015
Emerging economies: the end of QE in the US is an event with global impact in financial markets, but there will still be great differentiation between emerging
markets
China: adjustment to the downside of growth outlook (7.2%) because of recent moderation and the shift in economic policy targets, although with room for
manoeuvre
Banking Union should support credit recovery. The strength of the euro and “too low inflation for too long” are dragging down on
the recovery
EMU: Domestic demand will contribute to recovery in 2014 (1.1%) and 2015 (1.9%), especially investment
Page 5
Consumption Outlook 1H14 / 17 June 2014
Section 1
Favourable outlooks, pending risks
Economic growth (%) Source: BBVA Research
Global expansion will continue, with some uncertainty but without immediate systemic
risks
Heterogeneous impact on emerging markets
Risks on the horizon: tightening monetary policy by the Fed and
slowdown in China
Page 6
3,3 3,03,6 3,9
2,8
1,82,5 2,5
-0,6-0,4
1,1
1,9
5,05,4 5,6 5,9
-4
-2
0
2
4
6
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20
12
20
13
20
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20
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20
14
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13
20
14
20
15
World US EMU BBVA-EAGLES
Baseline scenario Apr-2014 Baseline scenario Jan-2014
Consumption Outlook 1H14 / 17 June 2014
Section 1
Growth drivers in the eurozone
1. The available data are favourable, particularly confidence
2. The financial environment has improved, especially on the periphery
3. Fiscal policy is less restrictive
4. Unprecedented measures by the ECB to re-establish its monetary-policy´s transmission mechanism. ECB ready to offer further support
5. In general terms, banking union is progressing
6. The external environment is favourable, but the euro is very strong
Page 7
Consumption Outlook 1H14 / 17 June 2014
Section 1
Risks are bounded
Inflation in the eurozone (% YoY) Source: BBVA Research
Surprises to the downside in inflation have increased the risk of unanchored
expectations
The strength of the euro and the fall in prices of raw materials are exerting
pressure to the downside on inflation …
… but the recovery underway in demand and the improvement in the credit supply
reduce the risk of deflation
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20% 40% 60% 95%Page 8
Consumption Outlook 1H14 / 17 June 2014
Section 1
The world economy improves
Section 2
The recovery of the Spanish economy accelerates, but further reforms are required Section 3
Private consumption is undoubtedly recovering…
Section 4
… particularly in (some) durable goods
Section 5
On Spanish households’ consumption habits: substituting imports and inflation differentials between households
Index
Page 9
Consumption Outlook 1H14 / 17 June 2014
The Spanish economy’s recovery accelerates
Spain: GDP growth and MICA-BBVA forecasts (% QoQ) Source: BBVA Research based on INE
The economy has grown for three consecutive quarters, and more strongly in 1Q14 (0.4%
QoQ) …
… thanks to better fundamentals, less need for fiscal adjustment, mitigation of some uncertainties and import substitution
If the favourable start to 1Q14 were to consolidate in the next few months, growth
could accelerate again, granting a rate above 1% in 2014
-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
Jun-0
9
Sep
-09
Dec-
09
Mar-
10
Jun-1
0
Sep
-10
Dec-
10
Mar-
11
Jun-1
1
Sep
-11
Dec-
11
Mar-
12
Jun-1
2
Sep
-12
Dec-
12
Mar-
13
Jun-1
3
Sep
-13
Dec-
13
Mar-
14
Jun-1
4 (
f)
CI at 60% CI at 40% CI at 20% GDP (% QoQ)
Page 10
Consumption Outlook 1H14 / 17 June 2014
Spain: GDP growth by region (%) Source: BBVA Research
We have revised 2014 GDP growth upwards, from 0.9% to 1.1%, and we maintain our 1.9% forecast for 2015
… are key to explaining the regions’ different growth rates
Regional growth is heterogeneous. Progress in correcting imbalances and
exposure to foreign demand …
Section 2
The Spanish economy’s recovery accelerates
Page 11
AND
ARA
AST
BAL
CAN
CNT
CYL
CLM
CAT
EXT
GAL MAD
MUR
NAV
BASC
RIO
VAL
SPA
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2
GD
P g
row
th i
n 2
01
5
GDP growth in 2014
Consumption Outlook 1H14 / 17 June 2014
Section 2
Some uncertainties have been resolved
Spain: growth and composition of goods exports by geography Source: BBVA Research based on Datacomex
Declining activity in emerging markets accounts for the temporary slowdown in goods exports observed in the last two
quarters
On average, three quarters of the export growth during the crisis is accounted for by
geographic and product diversification
Competitiveness continues to improve through decreasing ULCs, which helps both exports and the process of import
substitution
Exports continue to grow 1
Page 12
0
10
20
30
40
50
60
70
-15
-10
-5
0
5
10
15
20
EuropeanUnion
North America EAGLEs Rest of theworld
Nominal growth, 1Q13 average % YoY (LHS)
Nominal growth, 4Q13 average % YoY (LHS)
Nominal growth, 1Q14 average % YoY (LHS)
Exports share, % (RHS)
Consumption Outlook 1H14 / 17 June 2014
Section 2
Some uncertainties have been resolved
Spain: investment in machinery and equipment (M&E) (Real ratios at 2008 prices) Source: BBVA Research based on INE
Whereas in Europe as a whole investment in M&E has grown 8.3% since it bottomed-
out in 2Q09, in Spain it has grown by 17.6%
… which is consistent with the change in productive model oriented towards the
external sector
Today M&E investment represents around 45% of the total and more than 8% of real
domestic demand (all-time high)…
Investment gathers pace 2
Page 13
4
5
6
7
8
9
10
Dec-8
1
Dec-8
3
Dec-8
5
Dec-8
7
Dec-8
9
Dec-9
1
Dec-9
3
Dec-9
5
Dec-9
7
Dec-9
9
Dec-0
1
Dec-0
3
Dec-0
5
Dec-0
7
Dec-0
9
Dec-1
1
Dec-1
3
Dec-1
5
% GDP % domestic demand
Consumption Outlook 1H14 / 17 June 2014
Section 2
Some uncertainties have been resolved
Spain: 10-year bond yield (Difference vs. previous forecasts in bp) Source: BBVA Research
Improved perceptions abroad have reduced dependence on the ECB and also improved access to wholesale markets for
large companies
A permanent drop of 100bp in sovereign yields implies up to 1% more growth for the
economy
Lower financial tensions are felt in the economy with a six- to nine-month time lag
Lower financial tensions 3
-250
-200
-150
-100
-50
0
2014 2015
Jul-13 Oct-13 Ene-14 Abr-14
Page 14
Consumption Outlook 1H14 / 17 June 2014
Section 2
Some uncertainties have been resolved
Spain: new retail credit operations (% YoY) Source: BBVA Research based on Bank of Spain
The Spanish economy is going through an unavoidable deleveraging process …
A turning point is already visible, together with an improvement in credit flows to households and SMEs, which will be
strengthened throughout 2014
… which is compatible with credit availability for solvent projects
New credit flows are improving 4
Page 15
-35%
-25%
-15%
-5%
5%
15%
25%
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Actual Trend
Consumption Outlook 1H14 / 17 June 2014
Section 2
Some uncertainties have been resolved
Regions: breakdown of public deficit, excluding aid to the financial sector (% GDP) Source: BBVA Research based on MINHAP
The fiscal effort made at the end of 2013 and the recovery both significantly
increase the likelihood of meeting targets in 2014 …
Meeting the 2015 targets will depend on the impact of the tax reform and the
measures passed with the official budget
… although doubts remain over how public revenues will respond to economic growth
and the impact of the reform of local corporations
Meeting fiscal targets 5
Page 16
9.1
3.1
5.3
6.8
1.8 2.0
6.6
-0,4 0.3
5.8
-0,9
0.2
5.1
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Defici
t20
11
Passiv
e fis
cal p
olic
y
Fis
cal effo
rt
Defici
t 20
12
Passiv
e fis
cal p
olic
y
Fis
cal effo
rt
Defici
t 20
13
Passiv
e fis
cal p
olic
y
Fis
cal effo
rt
Defici
t 20
14
Passiv
e fis
cal p
olic
y
Fis
cal effo
rt
Defici
t 20
15
2012 2013 2014 2015
Consumption Outlook 1H14 / 17 June 2014
Section 2
Some uncertainties have been resolved
Spain: impact of the wage restraint in 2012 on employment (‘000s of full-time-equivalent jobs) Source: BBVA Research
Some of the reforms introduced in the last few years are starting to have a positive
impact …
Structural changes will imply that employment will respond more rapidly to
economic recovery
… such as labour reform. Job-creation has begun earlier than expected
Impact of reforms 6
Page 17
0
200
400
600
800
1000
1200
Short term From the third year From the third year
Employment destruction avoided by thewage moderation
Jobs that would havebeen saved had the
process begun in2008
Consumption Outlook 1H14 / 17 June 2014
Section 2
The need to go further with the reforms
Employment performance (Employment level at the beginning of each crisis = 100 ) Source: BBVA Research based on Andrés and Doménech (2012)
Urgent short-term goal: reduce the unemployment rate
Wage flexibility to win back productivity (∆ of employment and W) and more competition (margin reduction)
But the labour market’s problems go deeper: collective bargaining, two-tier
system and employment policies
Target for GDP growth: 2.5% to 2025
Page 18
80
85
90
95
100
105
Peak 2 4 6 8 10 12 14 16 18years
Em
plo
ym
ent
leve
l at th
e b
egin
nin
g o
f th
e c
risis
=
100
Spain , 2007-25
EU8, 2007-11 USA, 2007-14
USA, 1929-40
Consumption Outlook 1H14 / 17 June 2014
Section 2
The need to go further with the reforms
1. Complete the restructuring of the financial sector and deleverage to improve financing in the Spanish economy and attract FDI
2. Public administration reform, fiscal consolidation and long-term
sustainability of public finances, with an efficient fiscal system that incentivises growth and the creation of employment Experts Committee report
3. Reforms to improve productivity, firm size, competitiveness and the attractiveness of Spain to foreign physical, human and technological capital
4. Going further with reforms that improve the effectiveness of active employment policies, reduce the two-tier nature of the labour market and make
it work better more employment, and of higher quality
Page 19
Consumption Outlook 1H14 / 17 June 2014
Section 1
The world economy improves
Section 2
The recovery of the Spanish economy accelerates, but further reforms are required
Section 3
Private consumption is undoubtedly recovering…
Section 4
… particularly in (some) durable goods
Section 5
On Spanish households’ consumption habits: import substitution and inflation differentials between households
Index
Page 20
Consumption Outlook 1H14 / 17 June 2014
Section 3
Private consumption is undoubtedly recovering
Page 21
Spain: growth in private consumption (%) Source: BBVA Research based on INE
Disposable income: change in the labour market cycle
Propensity to consume: less uncertainty
Wealth: Increase in financial wealth
What are the drivers of the improvement in consumption?
Borrowing capacity: Household: increase in financing
Public sector: PIVE
-6
-5
-4
-3
-2
-1
0
1
2
3
Ma
r-0
8Jun-0
8S
ep
-08
Dec-0
8M
ar-
09
Jun-0
9S
ep
-09
Dec-0
9M
ar-
10
Jun-1
0S
ep
-10
Dec-1
0M
ar-
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Jun-1
1S
ep
-11
Dec-1
1M
ar-
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Jun-1
2S
ep
-12
Dec-1
2M
ar-
13
Jun-1
3S
ep
-13
Dec-1
3M
ar-
14
Jun-1
4S
ep
-14
Dec-1
4M
ar-
15
Jun-1
5S
ep
-15
Dec-1
5
% YoY Average
Consumption Outlook 1H14 / 17 June 2014
Section 3
Private consumption is undoubtedly recovering
Spain: employment and unemployment rate (%) Source: BBVA Research based on INE
1. Cyclical change in the labour market
The labour market reform has enabled a readjustment of the balance between quantities (employment) and prices
(wages)
Sustained reduction in the unemployment rate will arrive in 2H14
The economy has started to create employment in 1H14
Page 22
0.0
4.0
8.0
12.0
16.0
20.0
24.0
28.0
-7.5
-6.0
-4.5
-3.0
-1.5
0.0
1.5
3.0
2008 2009 2010 2011 2012 2013 2014 2015
Employment (% LHS) Unemployment rate (% RHS)
Consumption Outlook 1H14 / 17 June 2014
Section 3
Private consumption is undoubtedly recovering
Spain: real net financial wealth (Deflated with the consumption deflator, swda data, %) Source: BBVA Research based on Bank of Spain
2. Increase in net financial wealth
Reductions in financial tensions → recovery of share prices and reduction in borrowing costs → ∆ in financial wealth
BBVA Research: ∆ of 1% per quarter in real net financial wealth → accumulated ∆ in private consumption of 0.2% over the
following four quarters
Real net financial wealth: ∆32.2% since 2Q12 → ∆5.5pp of growth in consumption
to 4Q14
Page 23
-15
-10
-5
0
5
10
15
0
200
400
600
800
1000
1200
Ma
r-0
8
Jun-0
8
Sep
-08
Dec-0
8
Ma
r-0
9
Jun-0
9
Sep
-09
Dec-0
9
Ma
r-1
0
Jun-1
0
Sep
-10
Dec-1
0
Ma
r-1
1
Jun-1
1
Sep
-11
Dec-1
1
Ma
r-1
2
Jun-1
2
Sep
-12
Dec-1
2
Ma
r-1
3
Jun-1
3
Sep
-13
Dec-1
3
EURmn (LHS) %qoq (RHS)
2Q12-4Q13: ∆32.2%
Consumption Outlook 1H14 / 17 June 2014
Section 3
Private consumption is undoubtedly recovering
Spain: household perceptions of the economic situation (swda data, quarterly averages, balance of answers) Source: BBVA Research based on EC
3. Less uncertainty
On the macroeconomy: the perception of the Spanish economy is at pre-crisis levels
On the microeconomy: perceptions of households’ own financial situation is as high as it has been for the last decade
The reduction in uncertainty is an incentive to consume, at the expense of saving
∆10 points in confidence → ∆ 1.2 points in consumption in the next 3 years
Page 24
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-70
-60
-50
-40
-30
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Ma
r-05
Ju
n-0
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ep-0
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ec-0
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ar-
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ep-0
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ec-0
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ar-
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Ju
n-0
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ep-0
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ec-0
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ar-
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Ju
n-0
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ep-0
8D
ec-0
8M
ar-
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Ju
n-0
9S
ep-0
9D
ec-0
9M
ar-
10
Ju
n-1
0S
ep-1
0D
ec-1
0M
ar-
11
Ju
n-1
1S
ep-1
1D
ec-1
1M
ar-
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Ju
n-1
2S
ep-1
2D
ec-1
2M
ar-
13
Ju
n-1
3S
ep-1
3D
ec-1
3M
ar-
14
Ju
n-1
4
Expectations on the household´s financial situation (12 months)
Expectations on the overall economic situation (12 months)
+22.9 points
+57.9 points
Consumption Outlook 1H14 / 17 June 2014
Section 3
Private consumption is undoubtedly recovering
Page 25
Spain: new consumer financing operations (3rd order centred moving average. Jan 11 = 100) Source: BBVA Research based on Bank of Spain
4. Improvement in financing (I)
New consumer credit operations have grown at double-digit rates between
January and April …
… driven by the increase in short-, medium- and long-term financing
… in a context of decreasing outstanding credit and high interest rates
Consumer credit/Spain GDP=5.9%=EMU 40
60
80
100
120
140
160
Jan-1
1
Apr-
11
Jul-1
1
Oct-
11
Jan-1
2
Apr-
12
Jul-1
2
Oct-
12
Jan-1
3
Apr-
13
Jul-1
3
Oct-
13
Jan-1
4
Apr-
14
Total < 1 year 1-5 years > 5 years
Consumption Outlook 1H14 / 17 June 2014
Section 3
Private consumption is undoubtedly recovering
BBVA business trends survey: perceptions of consumer credit supply and demand (Balance of replies. A value <0 indicates deterioration) Source: BBVA Research
The BBVA Business Trends Survey (BTS) in 2H13 already anticipated an increase in
financing
BTS for 1H14: those surveyed think that credit has performed favourably in all retail
trade activities…
… and that it will continue to do so in the second half of the year
4. Improvement in financing (II)
Page 26
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-75
-60
-45
-30
-15
0
15
30
45
60
2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14(f)
Supply Demand
Consumption Outlook 1H14 / 17 June 2014
Section 3
Private consumption is undoubtedly recovering
Spain: effect of the PIVE car programme on private consumption (pp of the quarterly growth rate) Source: BBVA Research
The PIVE programme has limited the negative and permanent effect on
consumption caused by the increase in VAT in September 2012
∆VAT → a fall of 300k new car registrations between October 2012 and May 2014 if
the PIVE plan had not been approved. The subsidy has meant this fall was restricted
to 53k vehicles
The effect on private consumption is 0.9% since 4Q12
5. Fiscal stimulus: PIVE
Page 27
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Over the quarterly growth rate
Cumulative effect
PIVE comes into effect: Oct-12
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0.2
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0.7
0.8
0.9
1.0
3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Over the quarterly growth rate Cumulative effect
PIVE comes into effect:
Consumption Outlook 1H14 / 17 June 2014
Section 1
The world economy improves
Section 2
The recovery of the Spanish economy accelerates, but further reforms are required
Section 3
Private consumption is undoubtedly recovering…
Section 4
… particularly in (some) durable goods
Section 5
On Spanish households’ consumption habits: import substitution and inflation differentials between households
Index
Page 28
Consumption Outlook 1H14 / 17 June 2014
Section 4
Spending on durable goods takes off
Spain: new car registrations, by channel (swda figures, MA3, Jan 09 = 100) Source: BBVA Research based on ANFAC and GANVAM
The private channel is the main responsible for the increase in registrations (2.3x since the 1st PIVE came into force)
…
…together with an increase in demand from car rental firms and, to a lesser
extent, from companies (renting)
The second-hand/new vehicle ratio has fallen: 1.9 to May 2014 vs. 2.1 to May 2013
Cars: sales are still driven by the PIVE programme
… but the country’s total car fleet is still aging (51.7% of cars are 10+ years old);
average age ≈ 11.3 years old
Page 29
0
25
50
75
100
125
150
175
200
en
e-0
9
ma
y-09
sep-0
9
en
e-1
0
ma
y-10
sep-1
0
en
e-1
1
ma
y-11
sep-1
1
en
e-1
2
ma
y-12
sep-1
2
en
e-1
3
ma
y-13
sep-1
3
en
e-1
4
ma
y-14
Total Retail Firms Car rental
Plan 2000E End ofPlan 2000E + ∆VAT
∆VAT + PIVE
0
25
50
75
100
125
150
175
200
Jan-0
9
Ma
y-09
Sep
-09
Jan-1
0
Ma
y-10
Sep
-10
Jan-1
1
Ma
y-11
Sep
-11
Jan-1
2
Ma
y-12
Sep
-12
Jan-1
3
Ma
y-13
Sep
-13
Jan-1
4
Ma
y-14
Total Retail Firms Car rental
Plan 2000EEnd of Plan 2000E
+ ∆VAT ∆VAT + PIVE
Consumption Outlook 1H14 / 17 June 2014
Section 4
Spending on durable goods takes off
Page 30
Spain: forecast new car registrations Source: BBVA Research
2014: 840k units (15.5% more than in 2013)
2015: numbers will depend on whether the subsidy is continued or not
∆2.5% if current conditions are continued through to the first half of the year
Drivers (per capita income, unemployment, relative prices and interest rates) are now
favourable
PIVE extension → rise in car registrations in 2014
-40
-30
-20
-10
0
10
20
0
200
400
600
800
1000
1200
2008 2009 2010 2011 2012 2013 2014 L/T
(% Y
oY
)
'000s o
f ve
hic
les
Actual Forecast
actual % YoY (RHS) forecast % YoY (RHS)
Consumption Outlook 1H14 / 17 June 2014
Section 4
Spending on durable goods takes off
Spain: new motorbike registrations and estimated fleet (CVEC data, 1Q08 = 100) Source: BBVA Research based on Bank of Spain Anesdor
1H14: double-digit growth
Drivers: improved expectations by potential buyers, increased availability of finance
and the unavoidable renovation of the fleet
2014: 112k new motorbike registrations (∆16.7%)
Motorbikes: the recovery consolidates
Page 31
0
20
40
60
80
100
120
140
Mar-
08
Jun-0
8S
ep-0
8D
ec-
08M
ar-
09
Jun-0
9S
ep-0
9D
ec-
09M
ar-
10
Jun-1
0S
ep-1
0D
ec-
10M
ar-
11
Jun-1
1S
ep-1
1D
ec-
11M
ar-
12
Jun-1
2S
ep-1
2D
ec-
12M
ar-
13
Jun-1
3S
ep-1
3D
ec-
13M
ar-
14
Jun-1
4 (f)
Car registrations Estimated car fleet
Moto-EPlan
Consumption Outlook 1H14 / 17 June 2014
Section 4
Spending on durable goods takes off
Spain: white goods sales per household (% YoY in unit terms) Source: BBVA Research based on ANFEL
The overall market has halved: -5.2 million appliances since 2006
(-51.8%)
Sales Jan-May 2014: 12.4% YoY (-5.6% in 2013)
Downward trend in prices → more modest ∆ in turnover (6.1%)
All electrical appliances saw positive YoY growth, the majority in double digits
White goods: light at the end of the tunnel
Page 32
-40
-20
0
20
40Refrigerators
Freezers
Washing Machines
Driers
Dishwashers
Cooks
Ovens
Counters
Extractor hoods
Total
2013 Jan-May 2013 Jan-May 2014
Consumption Outlook 1H14 / 17 June 2014
Section 4
Spending on durable goods takes off
Spain: actual retail sales of brown goods (swda data, 1Q08 = 100) Source: BBVA Research based on INE
Sales have been weak since the VAT hike in September 2012 …
2Q14: recovery in demand for consumer electronics related to the World Cup
Fall in relative prices and in penetration rates
Exceptions: tablets, laptops & mobile phones
Brown goods: erratic performance
Page 33
-15
-10
-5
0
5
10
Mar-
08
Jun-0
8S
ep-0
8D
ec-
08M
ar-
09
Jun-0
9S
ep-0
9D
ec-
09M
ar-
10
Jun-1
0S
ep-1
0D
ec-
10M
ar-
11
Jun-1
1S
ep-1
1D
ec-
11M
ar-
12
Jun-1
2S
ep-1
2D
ec-
12M
ar-
13
Jun-1
3S
ep-1
3D
ec-
13M
ar-
14
Jun-1
4 (f)
ICT
Consumer electronics
Non-food products -12
-10
-8
-6
-4
-2
0
2
4
6
Ma
r-0
8
Jun-0
8
Sep
-08
Dec-0
8
Ma
r-0
9
Jun-0
9
Sep
-09
Dec-0
9
Ma
r-1
0
Jun-1
0
Sep
-10
Dec-1
0
Ma
r-1
1
Jun-1
1
Sep
-11
Dec-1
1
Ma
r-1
2
Jun-1
2
Sep
-12
Dec-1
2
Ma
r-1
3
Jun-1
3
Sep
-13
Dec-1
3
Ma
r-1
4
Jun-1
4 (
f)
ICT Consumer electronics Non-food products
Consumption Outlook 1H14 / 17 June 2014
Section 4
Spending on durable goods takes off
Spain: turnover of the furniture sector vs. housing investment (Trend. 1Q08 = 100) Source: BBVA Research based on INE
Stable turnover, stable prices … for the fourth consecutive quarter
BBVA Research estimates: ∆ in nominal investment in housing at 1%
QoQ → 0.5% cumulative ∆ in turnover
House purchases will start to recover over the course of 2014, which should drive
consumer demand for furniture starting in 1H15
Furniture: in a context of increasing demand for housing
Page 34
20
30
40
50
60
70
80
90
100
Ma
r-0
8Jun-0
8S
ep
-08
Dec-0
8M
ar-
09
Jun-0
9S
ep
-09
Dec-0
9M
ar-
10
Jun-1
0S
ep
-10
Dec-1
0M
ar-
11
Jun-1
1S
ep
-11
Dec-1
1M
ar-
12
Jun-1
2S
ep
-12
Dec-1
2M
ar-
13
Jun-1
3S
ep
-13
Dec-1
3M
ar-
14
Jun-1
4S
ep
-14
Dec-1
4M
ar-
15
Jun-1
5S
ep
-15
Dec-1
5
Furniture
Nominal housing investment
Real housing investment
Consumption Outlook 1H14 / 17 June 2014
Section 1
The world economy improves
Section 2
The recovery of the Spanish economy accelerates, but further reforms are required
Section 3
Private consumption is undoubtedly recovering…
Section 4
… particularly in (some) durable goods
Section 5
On Spanish households’ consumption habits: import substitution and inflation differentials between households
Index
Page 35
Consumption Outlook 1H14 / 17 June 2014
Section 5
Are consumer preferences for Spanish-made goods changing?
Spain: private consumption and imports of non-energy consumer goods (Deflated sa data, 1Q09 = 100) Source: BBVA Research based on INE & Customs
Since the beginning of 2009, consumer goods imports have contracted 12%, more than twice as much as private consumption
And the rest? Import substitution by domestic output
Part of the correction is explained by reduced household spending (income
effect)
Box 1
Page 36
70
75
80
85
90
95
100
105
Ma
r-0
9
Jun-0
9
Sep
-09
Dec-0
9
Ma
r-1
0
Jun-1
0
Sep
-10
Dec-1
0
Ma
r-1
1
Jun-1
1
Sep
-11
Dec-1
1
Ma
r-1
2
Jun-1
2
Sep
-12
Dec-1
2
Ma
r-1
3
Jun-1
3
Sep
-13
Dec-1
3
Ma
r-1
4
Private consumption
Imports of non-energy consumption products
-6.2% until 1Q13 (-4.8% until 1Q14)
-25.7% until 1Q13 (-12.0% until 1Q14)
Consumption Outlook 1H14 / 17 June 2014
Section 5
Are consumer preferences for Spanish-made goods changing? Yes, they are
Spain: breakdown of the variation in consumer goods imports into their long-term drivers (1Q09-1Q13, pp) Source: BBVA Research
Import substitution could be due to: • Deterioration in competitiveness – price
of foreign-made goods • Change in households’ preferences
towards Spanish-made goods
… particularly in durable goods (substitution effect : 70%)
Results: • Import sensitivity to income and, above
all, to prices has increased during the recession
• Import substitution, cased by changes in preferences, explains two-thirds of the fall in consumer imports …
Page 37
-60,0
-50,0
-40,0
-30,0
-20,0
-10,0
0,0
10,0
Total Durables
Loss (-) / Gain (+) in competitiveness
Income effect
Change in preferences
Total (actual)
Total (LT explained)
Consumption Outlook 1H14 / 17 June 2014
Section 5
My CPI isn’t like your CPI: inflation differentials by household
Spain: inflation distribution in 2007 & 2013 (% of households) Source: BBVA Research based on INE
The apparent simplicity of CPI has facilitated its use as a mechanism for
indexing numerous monetary variables (salaries, pensions, etc.)
Outcome: inflation dispersion is significant and has increased during the crisis
Nonetheless, it aggregates prices for millions of household baskets → inflation is
not the same for all households
Box 2
Page 38
Average 2013 Average 2007
0
5
10
15
20
Ho
use
ho
lds (
%)
-2 0 2 4 6 8Headline inflation (%)
Consumption Outlook 1H14 / 17 June 2014
Section 5
My CPI isn’t like your CPI: inflation differentials by household
Spain: estimated inflation differentials by income level (in pp vs. the 20% of households with higher equivalent income) Source : BBVA Research
What household characteristics affect the rate of inflation for that household?
• Basic goods (foodstuffs) • Products subject to regulated prices
(alcohol and tobacco) • A combination of both factors (housing
and supplies)
Lower-income households face higher inflation because their consumption is
concentrated on products whose prices are more rigid to the downside:
Page 39
-0,05
0,00
0,05
0,10
0,15
0,20
0,25
1st Quintile(20% with lower
income)
2nd Quintile(20%-40%)
3 rd Quintile(40%-60%)
4 th Quintile(60%-80%)
Marginal effect of the income level on the household´s inflation rate
CI at 90%
Consumption Outlook 1H14 / 17 June 2014
Key Messages
The global economic cycle is improving, supported by the expansion in developed economies
Spain is not lagging behind. Growth is accelerating, but more reforms are still needed
Private consumption is undoubtedly recovering, particularly durable goods
Causes: better fundamentals, more financing, less uncertainty and the PIVE programme (incentivising purchase of energy-efficient cars)
Lower preference by Spanish consumers for imported products. The role played by the price in purchase decision making has become more and more relevant
Inflation differentials among household types is significant. Lower-income families are bearing higher inflation
1
2
3
4
5
6
Page 40
Consumption Outlook 1H14 / 17 June 2014
Appendix
Baseline Scenario
Spain & Europe: macroeconomic forecasts Source: BBVA Research based on INE & Eurostat
Page 41
Spain EMU Spain EMU Spain EMU Spain EMU
Households final consumption expenditure -2,8 -1,4 -2,1 -0,7 1,4 0,8 1,3 1,3
General government final consumption exp. -4,8 -0,6 -2,3 0,1 -1,6 0,3 1,4 0,7
Gross fixed capital formation (G.F.C.F.) -7,0 -3,8 -5,1 -2,9 1,0 3,1 4,7 5,1
Equipment and machinery -3,9 -4,3 2,2 -1,9 7,9 5,2 6,9 7,0
Housing -8,7 -3,3 -8,0 -3,6 -3,4 1,1 4,9 3,9
Other constructions -10,6 -4,7 -10,9 -4,3 -4,0 0,5 1,1 3,2
Changes in inventories (*) 0,0 -0,5 0,0 -0,1 0,0 0,0 0,0 0,0
Domestic Demand (*) -4,1 -2,1 -2,7 -1,0 0,7 1,0 1,9 1,8
Exports 2,1 2,7 4,9 1,4 6,0 3,1 5,1 4,2
Imports -5,7 -0,8 0,4 0,0 5,4 3,1 5,4 4,6
External Demand (*) 2,5 1,5 1,5 0,6 0,4 0,1 0,0 0,0
GDP mp -1,6 -0,6 -1,2 -0,4 1,1 1,1 1,9 1,9
Pro-memoria
GDP excluding housing -1,2 -0,4 -0,9 -0,2 1,3 1,1 1,8 1,7
GDP excluding contruction -0,4 -0,2 -0,1 0,0 1,6 1,2 1,8 1,7
Total employment (LFS) -4,3 -0,7 -2,8 -0,9 0,3 0,1 1,4 0,7
Unemployment rate (% Active pop.) 24,8 11,3 26,1 12,0 25,1 11,9 24,2 11,4
Current account balance (% GDP) -1,2 1,2 0,8 2,3 1,3 2,2 1,5 2,1
Public debt (% GDP) (**) 86,0 93,0 93,9 95,2 98,4 95,9 100,4 95,5
Public deficit (% GDP) -6,8 -3,7 -6,6 -3,0 -5,8 -2,6 -5,1 -2,1
CPI (average) 2,4 2,5 1,4 1,4 0,3 0,9 0,9 1,3
CPI (end of period) 2,9 2,3 0,3 0,8 0,5 1,1 1,2 1,4(*) Contribution to GDP Growth
(f): forecast
(**) Excluding aid to the banking sector in Spain
2012(% YoY)
2013 2014 (f) 2015 (f)