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The markets end their episodes of financial turbulence. After the financial instability of January and a large part of February, the investment climate has now become more favourable again. Equity and corporate bond prices have stabilised and financial assets have become appreciably less volatile within a short period of time. This improved financial confidence is mainly a result of somewhat more positive macroeconomic figures than expected, especially in the US, as well as the support provided by central banks and in particular the Federal Reserve (Fed) and ECB, and also the upswing in the price of crude oil which has risen by almost 50% since mid-January. In short, a financially turbulent episode has ended whose ultimate impact in growth terms is nevertheless likely to be limited. One good indication of this is that we expect world growth to reach 3.4% in 2016, a figure higher than the growth recorded in 2015. In spite of this benign scenario, however, we must remember that there are still significant downside risks including a hypothetical worsening of financial uncertainty, difficulties in ensuring a soft landing for the Chinese economy and further deterioration in the situation of fragile emerging countries such as Brazil and Russia.

The Fed is facing the dilemma of whether to act on the domestic front now or wait until global financial risks have calmed down. The American giant is going through mature phases of the cycle. Apart from some short-lived fluctuations, US growth reached a cruising speed in the order of 2% year-on-year in the second half of 2015 and looks like continuing around this figure for most of 2016. One key factor behind this situation is the solid labour market which, since the start of the recovery, has created more than 12 million jobs and has brought unemployment down to a low 4.9%. Within this context, inflation, which is still relatively contained, will take an upward turn over the coming months thanks to the recovery in oil prices, higher pressure on wages and strong domestic demand. Given this outlook, the path of monetary normalisation started by the Fed in December makes complete sense. However, the accommodative bias of its last communication, even taking into account the recent financial turbulence and uncertainty surrounding world growth, was greater than expected by investors. It appears that, facing the dilemma of whether to take immediate action because of the economy's mature phase in the cycle or waiting until external uncertainties become clearer, the Fed has chosen the latter. Nevertheless we believe this to be a temporary pause and monetary normalisation to continue in the second half of 2016.

The euro area is going in a different monetary direction; a much more accommodative one. In response to what the ECB sees as the euro area's worsening macroeconomic situation, the institution announced a further package of measures: interest rate cuts (reducing the Refi rate to 0.00% and the deposit rate to –0.40%), enlargement of its bond purchase or QE programme (by an additional 20 billion euros, up to 80 billion), inclusion of corporate bonds in the QE programme and four new TLTROs which, if certain conditions are met, will have a negative interest rate. On the whole these actions, more than expected, have boosted the stimuli to provide credit and strengthen expectations of very low interest rates for a substantial period of time. Although the final impact of this package of measures, in terms of higher growth and inflation, may be relatively small and take some time to be noticed, it should affect the segment of corporate debt which influences certain aspects of the financial markets, such as a change in the price of certain assets, as well as strengthening investor confidence.

Spain is entering a more mature phase of the cycle. In the coming quarters the Spanish economy will moderately reduce its rate of growth and, after growing by a dynamic 3.2% in 2015, in 2016 GDP growth will be 2.8% according to our forecasts. This slowdown is essentially the result of the gradual disappearance of tailwind effects that boosted growth in 2015 such as falling oil prices and the euro's depreciation. It is also due to less support from fiscal policy, which is very unlikely to be as expansionary as in 2015 if the public debt targets are to be met. In short, less growth but of higher quality, at least in terms of its sustainability. In particular, the greater predominance of the foreign sector, whose contribution will grow in 2016, is a positive development. So is the continued recovery in the real estate sector, growth in bank loans and the improved labour market; three trends that mean the country is still making progress towards full economic normalisation.

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