Economic Outlook


  • Spain: a year of transition

    A gradual moderation of growth. With the data available from three of the four quarters of the recently-ended 2019, all the indicators suggest that the growth of the economy for the year will have stood at around 1.9%. While this is a more contained rate than the previous year (2.4%), it remains well above the average growth anticipated for the euro area (1.1%). This moderation of growth can be put down to the fading of the cyclical boost offered by the initial phase of the economic recovery and the deterioration of the global trade environment. The latter – a product of elements such as the trade dispute between the US and China, uncertainties over Brexit and the difficulties of Europe’s automotive sector (due to the introduction of new regulations and the technological change that the sector is going through) – has had an impact on Spanish exports of goods and services through the demand channel, but it is not a sign of declining competitiveness in relative terms. Thus, the slowdown that we can see largely represents the process of growth converging towards levels more in line with the economy’s potential growth. Over the coming year, we expect this process of convergence to continue and the economy to grow at a rate of around 1.5%.

    Economic activity maintains a good tone in the closing stages of the year. The performance of the indicators over the past month has been mixed. On the one hand, consumer confidence in November fell by 1.2 points down to –10.3 points, while industrial production in October dropped by 1.3% year-on-year (+0.6% in September). In contrast, both the manufacturing and the services PMI for November showed a slight improvement and rose by 0.7 and 0.5 points, respectively, reaching 47.5 and 53.2 points. Once we incorporate the full set of indicators into the Nowcasting model for short-term GDP projections, we obtain a forecast of 0.4% quarter-on-quarter growth for Q4 2019, similar to the figure for the previous quarter. In addition, this rate would be consistent with our forecast for annual growth of 1.9% for 2019.

    The gradual slowdown of the labour market takes a respite in November. In particular, affiliation with Social Security increased by 2.3% year-on-year, the same growth rate as a month ago, albeit below that of November 2018 (2.9% year-on-year). As such, despite the slowdown in the economy, the pace of job creation remains strong and will continue to provide support for the growth of incomes and consumption. On the other hand, the growth in incomes is expected to be increasingly supported by a gradual recovery of wages, which the data have been showing for several quarters now. Whereas in 2017 wages per effective working hour remained stagnant (–0.1% annual growth), in 2018 their growth rose to 1.5%, while in Q3 2019 it accelerated up to 1.9% year-on-year.

    Saving remains stable in Q3. The steady pace of job growth and the recovery in wages have been reflected in the growth of households’ gross disposable income, which in Q3 2019 stood at 4.2% year-on-year. Furthermore, consumption grew at a significant – albeit somewhat more modest – rate of 2.6% year-on-year. The savings rate thus stood at 7.0% of gross disposable income (four-quarter cumulative figure), 1.4 pps higher than in Q3 2018 and similar to the figure for the previous quarter. Although the recovery of the savings rate from its lows of last year (5.5% at its lowest point) has meant lower

  • A year of transition?

    A turning point in the path of global slowdown? Following a few difficult quarters in which the economic sentiment indicators were losing ground at the global level, recently there has been a rebound in some representative confidence indicators. For instance, the global composite PMI indicator for November stood at 51.5 points (+0.7 points compared to October). A similar reading can be drawn from the global manufacturing PMI, which for the first time since April stood in expansive territory (above 50 points) thanks to the recovery of emerging economies following the bump in the sector (not the case in advanced economies). These figures are a harbinger of hope for the slight improvement expected in this new year: we expect global GDP growth to go from the 2.9% of 2019 to 3.3% in 2020. This will be particularly driven by the rebound of those emerging countries that fared worse in 2019 (Brazil, India, Russia and Turkey), while a controlled slowdown is expected in the US and Chinese economies, and in the euro area we expect continuity of the low but nonetheless positive levels of growth.

    The trade risks persist, but have been mitigated in the last month. The global economic slowdown witnessed in recent quarters can be explained by a combination of factors of a differing nature that are acting simultaneously and are expected to continue to limit the growth of the major economies (the US, euro area and China) in the near future. These factors are well known by our readers, namely, the trade dispute between the US and China, Brexit and the problems in the European automotive industry. In the last month, there has been an improvement in the outlook for two of these factors, specifically the trade dispute (in particular) and Brexit. In relation to the trade dispute, in mid-December the US and China announced a first trade agreement (the first phase of a total of three). Under the deal, China undertakes to substantially increase its purchases of US goods and services, while the US subsequently suspended a tariff hike scheduled for 15 December, as well as lowering the tariffs imposed in September 2019 (for further details, see the article «International Trade: first impression of the First Phase» in this Monthly Report). The balance of the deal is positive, as it helps to reduce the uncertainty that has caused so much damage in 2019, while it also represents a first step towards addressing deeper-routed aspects of the US-China dispute, such as intellectual property rights and forced technology transfer. Thus, it represents a positive first step, albeit with a caveat of caution: we will have to see how the negotiations of the following phases play out and we must bear in mind that it will take time for consumers and businesses to regain confidence.

    The uncertainty over Brexit clears... for now. The United Kingdom’s general election of 12 December gave Boris Johnson’s Conservative Party an absolute majority (with 365 of the 650 seats in the House of Commons). The outcome thus allowed for a quick ratification, in the House of Commons on 20 December, of the withdrawal agreement bill that Johnson had agreed with the EU. Brexit will therefore occur no later than 31 January 2020, giving way to a transition period in which the United Kingdom will remain within the European common market and subject to EU rules while the terms of the new relationship are negotiated. Thus, 2020 will be the

  • 2020: at the gates of a demanding year, again

    A turning point in the path of global slowdown? Following a few difficult quarters in which the economic sentiment indicators were losing ground at the global level, recently there has been a rebound in some representative confidence indicators. For instance, the global composite PMI indicator for November stood at 51.5 points (+0.7 points compared to October). A similar reading can be drawn from the global manufacturing PMI, which for the first time since April stood in expansive territory (above 50 points) thanks to the recovery of emerging economies following the bump in the sector (not the case in advanced economies). These figures are a harbinger of hope for the slight improvement expected in this new year: we expect global GDP growth to go from the 2.9% of 2019 to 3.3% in 2020. This will be particularly driven by the rebound of those emerging countries that fared worse in 2019 (Brazil, India, Russia and Turkey), while a controlled slowdown is expected in the US and Chinese economies, and in the euro area we expect continuity of the low but nonetheless positive levels of growth.

    The trade risks persist, but have been mitigated in the last month. The global economic slowdown witnessed in recent quarters can be explained by a combination of factors of a differing nature that are acting simultaneously and are expected to continue to limit the growth of the major economies (the US, euro area and China) in the near future. These factors are well known by our readers, namely, the trade dispute between the US and China, Brexit and the problems in the European automotive industry. In the last month, there has been an improvement in the outlook for two of these factors, specifically the trade dispute (in particular) and Brexit. In relation to the trade dispute, in mid-December the US and China announced a first trade agreement (the first phase of a total of three). Under the deal, China undertakes to substantially increase its purchases of US goods and services, while the US subsequently suspended a tariff hike scheduled for 15 December, as well as lowering the tariffs imposed in September 2019 (for further details, see the article «International Trade: first impression of the First Phase» in this Monthly Report). The balance of the deal is positive, as it helps to reduce the uncertainty that has caused so much damage in 2019, while it also represents a first step towards addressing deeper-routed aspects of the US-China dispute, such as intellectual property rights and forced technology transfer. Thus, it represents a positive first step, albeit with a caveat of caution: we will have to see how the negotiations of the following phases play out and we must bear in mind that it will take time for consumers and businesses to regain confidence.

    The uncertainty over Brexit clears... for now. The United Kingdom’s general election of 12 December gave Boris Johnson’s Conservative Party an absolute majority (with 365 of the 650 seats in the House of Commons). The outcome thus allowed for a quick ratification, in the House of Commons on 20 December, of the withdrawal agreement bill that Johnson had agreed with the EU. Brexit will therefore occur no later than 31 January 2020, giving way to a transition period in which the United Kingdom will remain within the European common market and subject to EU rules while the terms of the new relationship are negotiated. Thus, 2020

  • A resurgence of risk appetite brings an end to a year marked by swings in investor sentiment

    Good tone in the markets at the end of the year. As we leave 2019 behind, we look back on a year in which the financial markets were marked by the trade tensions between the US and China, the resolution of Brexit, the slowdown in global growth and the return to the scene of monetary stimuli on the part of the major central banks. December was no exception, and the year ended with progress being made in the field of trade (with a first agreement between the US and China) and in the British political situation (where Parliament has approved the EU withdrawal agreement). Furthermore, the central banks strengthened their commitment to the accommodative measures of the previous months. Thus, in a scenario of stabilisation of the economic outlook, December saw a reduction in volatility in the financial markets, while investors showed a greater appetite for risk-bearing assets. All this led to widespread gains in the stock markets and commodity prices, as well as to a certain recovery in interest rates. However, despite the better performance in the closing stages of the year, the risks affecting the economic and financial scenario will remain present in 2020. Furthermore, the sensitivity that the markets have shown throughout 2019 to geopolitical events and to messages from the major central banks suggests that they will continue to determine the investor mood in the new year.

    A good year for the stock markets, despite the ups and downs. While 2019 began with fears that the turbulence of late 2018 would continue to weigh down on stock prices, finally the year ended with notable and widespread gains: around 30% on a cumulative basis in the case of advanced economies and around 15% in emerging economies. These figures go beyond the rebound effect following the turmoil of the autumn of 2018. In fact, the main indices are well above their peaks reached in the summer of 2018: more than 10% above in advanced economies and around 6% above in emerging economies. The gains have been supported by the dovish measures taken by the central banks during the course of the year and a certain calm in the geopolitical uncertainties surrounding the US and China and in Europe (Brexit and Italy), as well as the finding that the risks of economic recession have been placated by the resilience of domestic demand. Nevertheless, the year has not been without difficulties and on various occasions the stock markets have registered major corrections to the sound of geopolitical tensions (such as in the episode of risk aversion of last summer). In addition to this risk factor, some western stock markets are showing high multiples (such as price-to-earnings ratios), highlighting the fears that some assets may be overvalued, as repeatedly emphasised by institutions such as the IMF and the BIS.

    Interest rates take root in accommodative territory. At their December meetings, both the ECB and the Fed conveyed a message of continuity of the dovish measures taken during 2019. On the one hand, on the occasion of Christine Lagarde’s debut as the new chair, the ECB opted to keep its monetary policy unchanged and reiterated its commitment to the stimulus package announced in September (a depo rate cut down to –0.50%, a resumption of net asset purchases and more favourable conditions for the TLTRO). Furthermore, backed by its reading of a scenario marked by weak growth and a persistence of risks, the ECB reiterated the need to maintain the favourable financial conditions for a long period. The Fed, meanwhile,

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