Download Eurozone: increasing uncertainty weighs on growth

Europe Economic Watch
18 Mar 2016
MACROECONOMIC ANALYSIS
Eurozone: increasing uncertainty weighs on
growth
Europe Unit
The euro zone continues to grow at a modest pace, thanks to the resilience of domestic
demand. The strength of private consumption over last few quarters was joined by a certain
recovery in investment at the end of 2015, despite the worsening of confidence and the
moderation of global demand. However, concerns remain and risks are tilted to the
downside, especially if the tensions in financial markets and the doubts about economic
policy in some European countries persist. Against this scenario and with inflation back in
negative figures, the ECB took further action to tackle the potential second-round effects.
The actual activity data were surprisingly positive in January and suggest that
domestic demand will continue to support moderate growth...
Recovery of the eurozone stabilized in the second half of last year, against the expected slight acceleration,
because the lower global demand finally weighed on exports and offset the momentum of domestic demand.
More positive news came from increased investment in the last quarter of the year; this together with the
increase in public consumption, linked to the management of the refugee crisis (especially in Germany),
offset the moderation in private consumption.
January retail sales suggest that the moderation in household consumption in 4Q15 may have been
temporary, after increasing for the second consecutive month and regrow to robust rates (0.8% over the
4Q15 average) supported by some fundamentals that continue to be strengthened by falling oil prices and
the improving labour market. Industrial production data also gave out more positive signals for investment,
after surprising in January with a strong overall growth by components and, above all, by the consolidation of
the increase in intermediate goods (about 4% annualized) and the rebound of capital goods. However, it
remains to be seen whether the consolidation of growth in domestic demand is sufficient to offset the lower
sales momentum abroad, following the moderation in global growth and the sharp depreciation of the euro
recorded over the last year. However, with exports virtually stagnant during the second half of 2015, the new
decrease in orders from abroad along with the dynamism of imports, suggest that net exports will continue to
weigh on growth in the coming quarters.
... although the worsening of confidence so far this year does not yet dispel
doubts about the strength of recovery
The sharp rise in global and idiosyncratic uncertainty and the escalation of tensions in financial markets was
noticeable in a widespread deterioration of confidence among agents, although this was heavier in the
industrial sector, as both the manufacturing PMI and the EC indicator fell by about 2 points to 51.2 and -4.4,
respectively. More in line with the indications of actual data on the strength of domestic demand, the drop
confidence in services was more moderate (about 1 point on the services PMI). Despite the correction in
confidence (following the sharp increase observed late last year), agents continue to be confident, at similar
levels to those observed in early 2015, when the eurozone GDP progressed at a quarterly rate of 0.4% /
0.5% QoQ.
1 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
The MICA-BBVA model estimates growth of 0.4% QoQ in 1Q16
With all this information, which is still limited to actual data from January and based on confidence for
February, our MICA-BBVA model estimates growth of about 0.4% QoQ in the first quarter of the year; this is
an acceleration compared to fourth quarter of 2015, but is more moderate than our forecast three months
(0.5%) ago. Together, the data 4Q15 and what is expected for 1Q16 would indicate growth for the whole of
2016 of around two tenths less than our forecast of 1.8%, which still considers that the recovery will gain
some traction throughout the year to average around 0.5% QoQ, supported by monetary and fiscal policies
more favourable to growth and by low oil prices.
Negative inflation until the summer owing to falling oil prices, while the
moderation in core inflation slows
Inflation surprised to the downwards in February, not as much because it fell back into negative figures (0.2% YoY), which it was anticipated because of the sharp drop in oil prices, but by the moderation of core
inflation (by 0.2 to 0.8% YoY) feeding fears about possible second-round effects. According to confidence
surveys, companies continue to pass on to consumers the decreases in prices of raw materials. Although the
effect should be limited if consumption remains robust in a context of reduced corporate margins and gradual
improvement in the labour market, in March meeting the ECB took further steps to address the problem as
soon as possible (see ECB Watch).
The evolution of oil prices will continue to be the main determinant of how inflation behaves in the coming
months. A further, steeper drop in inflation could occur in coming months and negative rates recorded during
the second quarter (when we expect oil prices bottom out) and only gently pick up after the summer (to
around 0.5% YoY at the year-end).
Germany: despite the recent drop in confidence, actual data for January point
to robust growth in 1Q16
 In 4Q15, growth was more disappointing than expected when it stabilized at 0.3% QoQ, –caused
especially by its vulnerability to moderation in global demand– with a drop in exports that resulted in a
significant negative contribution of net exports (-0,5pp). This was offset by increased domestic demand
(0.8pp), in particular in government spending (1% QoQ from 0.5%) and investment (1.5% QoQ).
 Exports fell again in January, while foreign orders fell anew in February and this trend is unlikely to
reverse in the coming months, and its effect may be seen mainly in the manufacturing sector.
 However, the bleaker outlook of the qualitative indicators contrasts with the strong real activity data
available for January, more in line with the strength of confidence in the services sector, sustained by
strong domestic demand. Thus, industrial production across all components rebounded in January (3.3%
on 4Q15), but especially in investment goods and consumer goods. Meanwhile, retail sales consolidate
the momentum already observed in December, accelerating their growth to 0.8% and reversing the
moderation recorded in 4Q15 (0.5% QoQ after 0.8% of 3Q15).
 Despite the mixed signals of the most recent indicators, we expect growth to gain some traction in 1Q16
(in line with our scenario of 0.5% QoQ) or even make a surprising upturn in the light of the real indicators.
In any case, the indication extracted from the information as a whole is that it seems difficult that further
growth will be sustainable, as lower global demand will continue, although the pace of growth this year
will also be underpinned by the increase in both consumption and public spending.
2 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
France: doubts remain about the sustainability of the recovery, but it may be
moving at a relatively stable pace
 In 4Q15, activity grew at the steady rate of 0.3% QoQ (revised upwards by 0.1 pp), despite the negative
impact of the terrorist attacks on private consumption and the negative effect of net exports, driven mainly
by consumption and public and private investment.
 As in the eurozone, the strength of the actual data in January contrasts with the more pessimistic signals
of the confidence surveys, suggesting that the economy has shown some resilience to the tensions of the
financial markets, but also because of the disappearance of the negative effect on the data of the terrorist
attacks late last year. Thus, spending on household consumption grew again to robust rates in January to
stand at around 0.9% above the average for 4Q15 (-0.5% QoQ), while industrial production increased
significantly to reverse the declines observed in November and December and maintain a stable growth
(0.7% QoQ), while the construction sector continues to show signs of incipient recovery.
 By contrast, data from the January trade balance showed a sharp drop in exports of both goods and
services in January, indicating that weaker external demand will continue to burden growth, and that,
despite the weak euro, the French economy continues to suffer from certain problems of competitiveness.
 In light of all this data, our forecasts point to a moderate and relatively stable growth rate in 1Q16 (0.3%
QoQ), somewhat below what we expected three months ago. It may gain some momentum throughout
the year supported by a recovery in investment encouraged by the favourable financial conditions and
private consumption resulting from increased disposable income in households, despite the little leeway
for fiscal policy.
Italy: weak growth in early 2016, supported by domestic demand
 In 4Q15 the gradual slowdown of GDP growth continued to 0.1% QoQ from 0.4% a year ago.
Nevertheless, beyond the volatility of the data on accumulation of inventories, domestic demand has
been gradually gaining weight, although while net exports burdened growth during the whole of 2015,
foreign sales grew towards the end of the year and showed more resistance than in other countries in the
eurozone.
 The available data for the first quarter are very limited. The economic sentiment indicator fell in January
and February, but is still clearly above the historical average, while industrial production rose significantly
in January, indicating that the sector is on the path of robust growth (1.3% 4Q15) after stagnating in the
4Q15.
 The Italian economy suffered financial tensions earlier this year and the doubts about its financial sector
are not yet completely cleared up; this may have weighed on the progress of the economy earlier this
year. All in all, we expect that GDP growth might gain some traction and rise to about 0.2% QoQ, slightly
less than expected earlier this year. Nevertheless, the Italian economy may one be that most benefits
from the new measures of the ECB, which would help the recovery to gain some momentum in the
remainder of the year.
3 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
Spain: despite the uncertainty, the growth rate was maintained at the start of
2016, accompanied by job creation

In 4Q15, domestic demand was the main support of the activity with a 0.6pp contribution to growth,
highlighting the solid progress of both household consumption and private production investment.
Exports slowed (0.9 pp to 0.9%), but less than imports (2.8pp to 0.3% QoQ), resulting in a positive
contribution to growth of net external demand (0.2pp).

Although confidence indicators for households and industry fell again in February, moderation of
optimism was lower than that observed earlier this year. Unemployment expectations explain the fall in
the consumer confidence, while the outlook on the orders portfolio and inventory explain the
developments in industrial confidence.

The consumer spending and employment variables indicate that consumption continues to lead the
recovery (with similar rates as at the end of 2015), while production and industrial confidence again
overtake the slower growth in investment in machinery and equipment. Data on foreign sales and
expectations point to a continuation of the sluggishness of goods exports, along with a slowdown in
services in 1Q16.

Despite the uncertainty of economic policy, the MICA-BBVA model estimates GDP growth at around
0.8% QoQ in 1Q16 which, if confirmed, will be a stabilization of the rate of expansion, in line with our
scenario. Growth will continue in the coming quarters supported by external factors (cheaper oil prices
and, above all, the ECB’s monetary policy) and internal factors, such as changes that have taken place
in the production structure as well as the expansionary stance of fiscal policy (for details see Spain
Economic Watch).
4 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
Euro zone
National accounts: modest growth in 4Q15 (0.3% QoQ)
Domestic demand contributed +0.5pp, driven by investment growth (+1.3% QoQ). Private consumption decelerated (+0.2% QoQ),
while the public spending increased (+0.6% QoQ). Net exports drained -0.3pp from growth
Graph 1
Graph 2
GDP (% QoQ) and contribution by component (pp)*
GDP growth (% QoQ) and MICA-BBVA forecast*
0.9
0.7
0.5
0.3
0.1
-0.1
-0.3
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
-0.5
CI 20%
CI 40%
CI 60%
Observed
Confidence: the PMI and ESI continued to fall in February
The PMI fell in February, both in services and especially in manufacturing, together with the ESI sentiment, which fell 1.3pp to 103.8 points,
burdened by weak household confidence
Graph 3
Graph 4
PMIs and GDP growth (% QoQ) *
Confidence (ESI) and GDP growth (% YoY) *
0.75
55
0.50
0.25
0.00
50
-0.25
-0.50
-0.75
45
Feb-12
Feb-13
Feb-14
Real GDP (% QoQ, lhs)
PMI average
Feb-15
3
115
2
110
1
105
0
100
-1
95
-2
90
-3
Feb-16
85
Feb-12
PMI (rhs)
±1 standard deviations PMI
Feb-13
Feb-14
Real GDP (% YoY, lhs)
Media ESI
Feb-15
Feb-16
ESI (rhs)
±1 desviación típica ESI
Activity: industrial production and retail sales rose in January
In January, industrial production bounced up (+2.1% MoM) and stood 1.7% above the 4Q15 average (0.4% QoQ), while retail sales
increased more than expected in January (+0.4% MoM) and stand at 0.9% above 4Q15 (0.1% QoQ)
Graph 5
Graph 6
Industrial production (% YoY) and manufacturing
PMI*
Retail trade (% 3M/3M) and growth in consumption
(% QoQ)*
5
55
0.50
1.0
2.5
52.5
0.25
0.5
0
50
0.00
-2.5
0.0
47.5
-0.25
-5
-0.5
45
-0.50
-7.5
-1.0
42.5
Feb-12
Feb-13
Feb-14
Industrial Production (% YoY, lhs)
PMI average
Feb-15
-0.75
Feb-16
-1.5
Jan-12
Manufacturing PMI (rhs)
±1 PMI standard deviations
Jan-13
Consumption (% QoQ, lhs)
Jan-14
Jan-15
Jan-16
Retail sales (% 3Mo3M, rhs)
*Sources: HAVER and BBVA Research
5 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
External sector: exports fell in January, after a small increase in 4Q15
Exports fell by -1.9% MoM, more than expected, although this drop could be partly driven by the drop in prices. Additionally, imports
dropped somewhat less, 1.3% MoM
Graph 7
Graph 8
Current account (% of GDP)*
Exports by destination (contribution to% YoY)*
30
10
3
20
5
2
10
1
0
0
0
-5
-1
-10
Jan-12
Jan-13
Jan-14
Jan-15
Current account (% of GDP, lhs)
Imports (% YoY, rhs)
Dec-13
Jun-14
Jan-16
Dec-14
Jun-15
Total exports outside the euro area
Asia
European countries not in the euro area
Exports (% YoY, rhs)
Dec-15
Rest of the world
United States
Labour market: unemployment falls by 0.1 points to 10.3% in January
In January, the unemployment rate decreased to 10.3%, although with differences between countries, and employment increased in
4Q15 at a steady rate (0.3% QoQ). Labour costs in the business sector moderated in 3Q15 (1.1% YoY after 1.6% YoY)
Graph 9
Unemployment rate (%) and employment
expectations*
Graph 10
Labour costs in the business sector (% YoY)*
3
12
1
2
11
0
1
10
-1
0
9
Feb-12
Feb-13
Feb-14
Employment (% YoY, lhs)
Unemployment (%, rhs)
Feb-15
Q1-10
Feb-16
Q3-10
Q1-11
Q3-11
Q1-12
Q3-12
Q1-13
Q3-13
Total
Non-Wage Cost
'Ee' employment expectations (lhs)
Q1-14
Q3-14
Q1-15
Q3-15
Wage Cost
Public sector
Prices: Negative inflation in February and the moderation of core inflation
Inflation declined by 0.5pp to -0.2% YoY in February, due to the intensification of falling energy prices, but also by the moderation of
core inflation (-0,2pp) to 0.8% YoY
Graph 11
Graph 12
Inflation rate, headline and core (% YoY)*
Inflation by components (contribution in %)*
4
2
4
3
1
3
2
0
2
1
-1
0
-2
1
0
-1
-1
-3
-2
-4
Feb-10
Feb-10
Feb-11
Feb-12
Feb-13
Inflation (lhs)
Inflation expectations (rhs)
Feb-14
Feb-15
Feb-11
Feb-12
HICP Overall
Unprocessed Food
Processed Food
Services
Feb-16
Core inflation (lhs)
Recession
Feb-13
Feb-14
Feb-15
Feb-16
HICP Core
Energy
Non Energy Industrial Goods
* Sources: HAVER and BBVA Research
6 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
Germany
National accounts: modest growth continues in 4Q15 (0.3% QoQ)
The main driver of GDP growth in 4Q15 was again domestic demand (+ 0.8pp, after + 0,6pp in 3Q15). External demand contributed
negatively to growth 4Q15 (-0,5pp) after contributing negatively also in 3Q15 (-0,3pp)
Graph 13
Graph 14
GDP (% QoQ) and contribution by component (pp)*
GDP (% QoQ) and forecasts *
1
.5
0
-.5
Q1-12
Q1-13
Q1-14
Q1-15
Q1-16
GDP growth
Projection with the latest available data
Confidence: the PMI and ESI worsened in February
In February, the composite PMI index and the Commission index worsened again, in both manufacturing and in services; national
indicators show similar evolutions, both ZEW and IFO deteriorated
Graph 15
Graph 16
PMIs and GDP growth (% QoQ) *
Confidence indicator (ESI, Ifo and ZEW) *
1.0
60
0.5
55
0.0
50
-0.5
45
-1.0
40
Feb-12
Feb-13
Feb-14
Real GDP (% QoQ, lhs)
PMI average
Feb-15
120
100
110
50
100
0
90
Feb-16
-50
Feb-12
Feb-13
PMI (rhs)
±1 standard deviations PMI
Feb-14
ESI (lhs)
ZEW (rhs)
Feb-15
Feb-16
IFO (lhs)
Activity: rebound in industrial output and retail sales rise in January
Industrial production grew strongly in January (+3.3% MoM), and currently stands at 3.1% above the average for 4Q15. Retail sales
rose by 0.7% MoM and open 1Q16 1.2% above the average of 4Q15
Graph 17
Graph 18
Industrial production (% YoY) and manufacturing
PMI*
Retail trade (% 3M/3M) and growth in consumption
(% QoQ)*
5
1.50
2
0.75
1
0.00
0
-0.75
-1
55
2.5
52.5
0
50
-2.5
47.5
-5
45
-7.5
42.5
Feb-12
Feb-13
Feb-14
Industrial Production (% YoY, lhs)
PMI average
Feb-15
-1.50
Feb-16
-2
Jan-12
Manufacturing PMI (rhs)
±1 PMI standard deviations
Jan-13
Consumption (% QoQ, lhs)
Jan-14
Jan-15
Jan-16
Retail sales (% 3Mo3M, rhs)
* Sources: HAVER and BBVA Research
7 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
External sector: exports continue to decline in early 2016
Exports fell by 0.5% MoM in January, reaching -0.9% below the average for 4Q15. Meanwhile, imports increased by 1.2% MoM in January to
0.5% above 4Q15
Graph 20
Exports growth (% YoY) and volume of export
orders*
Graph 19
Current account (% of GDP)*
40
30
30
20
30
9
5
8
20
10
10
0
7
-20
6
-45
5
4
Jan-12
Jan-13
Jan-14
Jan-15
Current account (% of GDP, lhs)
Imports (% YoY, rhs)
0
-10
-10
-20
Jan-16
-70
Feb-10
Feb-11
Exports (% YoY, rhs)
Feb-12
Feb-13
Exports (% YoY, lhs)
ESI average (rhs)
Feb-14
Feb-15
Feb-16
ESI volume of export order books (rhs)
±1 ESI standard deviations (rhs)
Labour market: unemployment remains at record lows
The unemployment rate is again at a record low (4.3%) in January, while growth in labour costs moderated to 2.4% YoY in 3Q15 after
3.1% YoY in 2Q15
Graph 21
Unemployment rate (%) and expectations of
employment*
Graph 22
Labour costs in the business sector (% YoY)*
7
15
4
6
0
5
-15
4
-30
2
0
Feb-12
Feb-13
Feb-14
Unemployment (lhs)
'Ee' average (rhs)
Feb-15
Q1-10
Feb-16
Q3-10
Q1-11
Q3-11
Q1-12
Q3-12
Q1-13
Total
Non-Wage Cost
Employment expectations 'Ee' (rhs)
±1 'Ee' standard deviations (rhs)
Q3-13
Q1-14
Q3-14
Q1-15
Q3-15
Wage Cost
Public sector
Prices: Inflation fell (-0.2% YoY) in February
In February, inflation fell by 0.6 points to -0.2% YoY. This is mainly explained by the larger drop in energy prices and the slower
increase in food and service prices
Graph 23
Graph 24
Inflation rate, headline and core (% YoY)*
Inflation by components (contributions in %)*
4
2
4
3
1
3
2
0
2
1
-1
0
-2
-1
-3
-2
-4
1
0
-1
Feb-10
Feb-10
Feb-11
Feb-12
Feb-13
Inflation (lhs)
Inflation expectations (rhs)
Feb-14
Feb-15
Feb-11
Feb-12
HICP Overall
Unprocessed Food
Processed Food
Services
Feb-16
Core inflation (lhs)
Recession
Feb-13
Feb-14
Feb-15
Feb-16
HICP Core
Energy
Non Energy Industrial Goods
* Sources: HAVER and BBVA Research
8 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
France
National Accounts: GDP growth revised + 0.1pp upward (+ 0.3% QoQ) in 4Q15
The fall in consumption (-0.2% QoQ from +0.5% QoQ) is partly compensated by public consumption that slightly accelerates its growth
rate to +0.5% QoQ. Investment (+0.7% QoQ after +0.1% QoQ) accelerated, together with the contribution of inventories (+0.7pp and
3Q15). However, net exports subtracted somewhat less from growth (-0,5pp after -0,7pp in 3Q15)
Graph 25
Graph 26
GDP (% QoQ) and contribution by component (pp)*
GDP (% QoQ) and forecasts *
1
.5
0
-.5
Q1-12
Q1-13
Q1-14
Q1-15
Q1-16
GDP growth
Projection with the latest available data
Confidence: worsening in February
The composite PMI again contracted, as did the ESI and the national indicators, which also pointed towards declining confidence.
Graph 27
Graph 28
PMIs and GDP growth (% QoQ) *
Confidence indicator (ESI, and INSEE) *
1.0
60
0.5
55
0.0
50
-0.5
2
110
1
105
0
100
-1
95
45
90
-2
-1.0
40
Feb-12
Feb-13
Feb-14
Real GDP (% QoQ, lhs)
PMI average
Feb-15
85
-3
Feb-16
Feb-12
PMI (rhs)
±1 standard deviations PMI
Feb-13
Feb-14
Real GDP (% YoY, lhs)
INSEE Business Climate (rhs)
Feb-15
Feb-16
ESI (rhs)
Activity: industrial production increased and retail sales held steady in January
With the January figure (+1.3% MoM), the industrial production index increased +0.8% above the 4Q15 average, while retail sales
remained unchanged in January, but opened 1Q16 +0.7% QoQ above 4Q15
Graph 29
Graph 30
Industrial production (% YoY) and manufacturing
PMI*
Retail trade (% 3M/3M) and growth in consumption
(% QoQ)*
5
55
2.5
1.0
2.0
1.5
52.5
0
0.5
50
1.0
0.5
-2.5
47.5
0.0
-5
0.0
45
-0.5
-7.5
42.5
Feb-12
Feb-13
Feb-14
Industrial Production (% YoY, lhs)
PMI average
Feb-15
-0.5
Feb-16
-1.0
Jan-12
Manufacturing PMI (rhs)
±1 PMI standard deviations
Jan-13
Consumption (% QoQ, lhs)
Jan-14
Jan-15
Jan-16
Retail sales (% 3Mo3M, rhs)
* Sources: HAVER and BBVA Research
9 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
External sector: exports fell in January
Following the increase in November and December, exports fell in January (goods -3% MoM and services -4.1%) and more than
imports, meaning that net exports will continue to weigh on growth
Graph 32
Exports growth (% YoY) and volume of export
orders*
Graph 31
Current account (% of GDP)*
2
10
30
30
15
0
5
0
0
-5
-2
-10
0
-30
-15
-4
-20
Jan-13
Jan-14
Jan-15
Current account (% of GDP, lhs)
Imports (% YoY, rhs)
-15
Jan-16
-60
Feb-10
Feb-11
Exports (% YoY, rhs)
Feb-12
Feb-13
Exports (% YoY, lhs)
ESI average (rhs)
Feb-14
Feb-15
Feb-16
ESI volume of export order books (rhs)
±1 ESI standard deviations (rhs)
Labour market: the unemployment rate increased in January
The unemployment rate increased by 0.1 to 10.2% in January. Meanwhile 3Q15 labour costs grew at the same pace as in 2Q15 (1.1%
YoY).
Graph 33
Unemployment rate (%) and expectations of
employment*
Graph 34
Labour costs in the business sector (% YoY)*
12
5
11
0
10
-5
4
3
2
1
9
-10
8
0
-1
-15
Feb-12
Feb-13
Feb-14
Unemployment (lhs)
Average 'Ee' (rhs)
Feb-15
Q1-10
Feb-16
Q3-10
Q1-11
Q3-11
Q1-12
Q3-12
Q1-13
Total
Non-Wage Cost
Employment expectations 'Ee' (rhs)
±1 standard deviations 'Ee' (rhs)
Q3-13
Q1-14
Q3-14
Q1-15
Q3-15
Wage Cost
Public sector
Prices: In February, inflation was again negative
In February, the harmonized inflation rate fell by 0.4 points to -0.1% YoY, the largest decline in the price of energy and manufactured
goods. Also food prices are slowing along with the price of services
Graph 35
Graph 36
Inflation rate, headline and core (% YoY)*
Inflation by components (contribution in %)*
4
3
2
3
2
1
2
0
1
1
-1
0
0
-2
-1
-3
-2
-4
-1
Feb-10
Feb-10
Feb-11
Feb-12
Feb-13
Inflation (lhs)
Inflation expectations (rhs)
Feb-14
Feb-15
Feb-16
Core inflation (lhs)
Recession
Feb-11
Feb-12
HICP Overall
Unprocessed Food
Processed Food
Services
Feb-13
Feb-14
Feb-15
Feb-16
HICP Core
Energy
Non Energy Industrial Goods
* Sources: HAVER and BBVA Research
10 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
Italy
National Accounts: the recovery lost momentum at the end of 2015 (0.1% QoQ)
Private consumption showed a growth rate of +0.3% QoQ, public consumption accelerated by 0.6% QoQ and investment grew by
+0.8% QoQ. External demand contributed positively (+ 0.1pp)
Graph 37
GDP (% QoQ) and contribution by components
(pp)*
Graph 38
GDP (% QoQ) and forecasts *
.5
0
-.5
-1
Q1-12
Q1-13
Q1-14
Q1-15
Q1-16
GDP growth
Projection with the latest available data
Confidence: in February PMIs and ESI were moderated by the manufacturing sector
The composite PMI fell slightly in February, weighed down by manufacturing, while service remained virtually stable. The ESI was
moderated by the drop in confidence in manufacturing and households, which was confirmed by the ISTAT indicator
Graph 39
Graph 40
PMIs and GDP growth (% QoQ) *
Confidence indicator (ESI, and ISTAT) *
1.0
60
0.5
55
0.0
50
-0.5
45
-1.0
40
Feb-12
Feb-13
Feb-14
Real GDP (% QoQ, lhs)
PMI average
Feb-15
2
110
0
100
-2
90
-4
Feb-16
80
Feb-12
PMI (rhs)
±1 standard deviations PMI
Feb-13
Feb-14
Real GDP (% YoY, lhs)
ISTAT business climate (rhs)
Feb-15
Feb-16
ESI (rhs)
Activity: industrial production rebounded in January and retail sales did not take off
Following declines in November and December, the industrial production index increased in January (+1.9% MoM) reaching +1.3%
above the average of 4Q15. Retail sales fell in December (-0.1% MoM) and -0.5% QoQ to below 3Q15
Graph 41
Graph 42
Industrial production (% YoY) and manufacturing
PMI*
Retail trade (% 3M/3M) and growth in consumption
(% QoQ)*
5
1
1
0
0
-1
-1
55
2.5
52.5
0
50
-2.5
47.5
-5
45
-7.5
42.5
Feb-12
Feb-13
Feb-14
Industrial Production (% YoY, lhs)
PMI average
Feb-15
-2
Feb-16
-2
Dec-11
Manufacturing PMI (rhs)
±1 PMI standard deviations
Dec-12
Dec-13
Consumption (% QoQ, lhs)
Dec-14
Dec-15
Retail sales (% 3Mo3M, rhs)
* Sources: HAVER and BBVA Research
11 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
External sector: exports increased in 4Q15
Exports rose in December and remained firmer in 4Q15 than in other countries in the eurozone; the rise, together with more moderate
import growth, supported growth in the last quarter of last year
Graph 43
Graph 44
Current account (% of GDP)*
Exports (% YoY) and volume of export orders*
40
40
0
20
-20
0
-40
-20
-60
4
30
2
20
0
-2
10
-4
0
-10
-6
Jan-12
Jan-13
Jan-14
Jan-15
Current account (% of GDP, lhs)
Imports (% YoY, rhs)
-40
Jan-16
-80
Feb-10
Feb-11
Exports (% YoY, rhs)
Feb-12
Feb-13
Exports (% YoY, lhs)
ESI average (rhs)
Feb-14
Feb-15
Feb-16
ESI volume of export order books (rhs)
±1 ESI standard deviations (rhs)
Labour market: unemployment continued to decline slowly
The unemployment rate fell by 0.1 to 11.5% in January. Labour costs fell by 0.4% YoY in 3Q15 (after -0.6% YoY in 2Q15).
Graph 45
Unemployment rate (%) and expectations of
employment*
Graph 46
Labour costs in the business sector (% YoY)*
13
10
12
5
11
0
10
-5
9
-10
8
-15
6
4
2
0
7
-2
-20
Feb-12
Feb-13
Feb-14
Unemployment (lhs)
'Ee' average (rhs)
Feb-15
Q1-10
Feb-16
Q3-10
Q1-11
Q3-11
Q1-12
Q3-12
Q1-13
Total
Non-Wage Cost
Employment expectations 'Ee' (rhs)
±1 'Ee' standard deviations (rhs)
Q3-13
Q1-14
Q3-14
Q1-15
Q3-15
Wage Cost
Public sector
Prices: negative inflation rates in February
The harmonized inflation rate fell to -0.2% YoY in February (January: +0.4% YoY) owing to a smaller increase in the price of services
and a further drop in energy. Hidden inflation, moderated by 0,5 to 0.4% YoY as a result
Graph 47
Graph 48
Inflation rate, headline and core (% YoY)
Inflation by components (contribution in %)*
4
2
4
3
1
3
2
0
2
1
-1
1
0
-2
0
-1
-3
-1
-2
-4
Feb-10
Feb-10
Feb-11
Feb-12
Feb-13
Inflation (lhs)
Inflation expectations (rhs)
Feb-14
Feb-15
Feb-11
Feb-12
HICP Overall
Unprocessed Food
Processed Food
Services
Feb-16
Core inflation (lhs)
Recession
Feb-13
Feb-14
Feb-15
Feb-16
HICP Core
Energy
Non Energy Industrial Goods
* Sources: HAVER and BBVA Research
12 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
Spain
National accounts: GDP growth stabilized in 4Q15 (0.8% QoQ)
Domestic demand was the main support of the activity with a 0,6pp contribution to growth, highlighting the solid progress of both
household consumption and investment. Exports slowed (0.9pp to 0.9%), but less than imports (2.8pp to 0.3% QoQ), resulting in a
positive contribution of net external demand (0.2pp)
Graph 49
GDP (% QoQ) and contribution by components
(pp)*
Graph 50
GDP growth (% QoQ) and MICA-BBVA forecast*
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
-1.5
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16 (f)
1.5
CI at 6 0%
CI at 4 0%
CI at 2 0%
GDP (%Qo Q)
Confidence: slight drop in confidence
Confidence indicators for households and industry fell again in February, but optimism fell less than at the beginning of this year.
Unemployment expectations explain the fall in consumer confidence, while the outlook on the orders portfolio and inventory explain
the developments in industrial confidence
Graph 51
Graph 5
PMIs and GDP growth (% QoQ) *
Confidence (ESI) and GDP growth (% YoY) *
1.0
60
0.5
55
0.0
50
110
1.5
100
0.0
-0.5
45
-1.0
40
90
-1.5
-1.5
-3.0
35
Feb-12
Feb-13
Feb-14
Real GDP (% QoQ, lhs)
PMI average
Feb-15
Feb-16
80
Feb-12
PMI (rhs)
±1 standard deviations PMI
Feb-13
Feb-14
Real GDP (% YoY, lhs)
ESI average
Feb-15
Feb-16
ESI (rhs)
±1 ESI standard deviations
Activity: moderation of the IPI and retail sales in January
Industrial activity declined marginally in January (-0.1% MoM), but the positive trend continued in the non-energy components. Retail sales
grew by 0.4% MoM for the second consecutive month, albeit less than expected
Graph 53
Graph 54
Industrial production (% YoY) and manufacturing
PMI*
Retail trade (% 3M/3M) and growth in consumption
(% QoQ)*
10
60
5
55
0
50
-5
45
4
1
0
0
-10
-4
-1
40
Feb-12
Feb-13
Feb-14
Industrial Production (% YoY, lhs)
PMI average
Feb-15
-8
-2
Feb-16
Jan-12
Manufacturing PMI (rhs)
±1 PMI standard deviations
Jan-13
Consumption (% QoQ, lhs)
Jan-14
Jan-15
Jan-16
Retail sales (% 3Mo3M, rhs)
* Sources: HAVER and BBVA Research
13 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
External sector: sluggishness in exports of goods and slowdown in services
Nevertheless, the variables relating to foreign tourism (tourist arrivals and spending) indicate that this demand component will again grow
at a similar pace to that seen in the first nine months of 2015, following the sharp increase exoerienced in 4Q15
Graph 56
Exports growth (% YoY) and volume of export
orders*
Graph 55
Current account (% of GDP)*
5
40
40
0
20
20
20
0
-20
-5
0
0
-40
-10
-20
Dec-11
Dec-12
Dec-13
Current account (% of GDP, lhs)
Imports (% YoY, rhs)
Dec-14
-20
Dec-15
-60
Feb-10
Exports (% YoY, rhs)
Feb-11
Feb-12
Exports (% YoY, lhs)
ESI average (rhs)
Feb-13
Feb-14
Feb-15
Feb-16
ESI volume of export order books (rhs)
±1 ESI standard deviations (rhs)
Labour market: mmprovement continues as 2016 gets under way
Affiliation to social security continued to grow in February and points to a stabilization in the pace of job creation (in 4Q15 0.7% QoQ).
Meanwhile, unemployment continued its downward trend in the second month of 2016
Graph 57
Graph 58
Unemployment rate (%) and expectations of
employment*
Employment growth: QNA and Social Security (%
QoQ) *
28
1.0
10
1
26
0
24
0.0
-10
22
0
-1.0
-1
-20
-2.0
20
-2
-30
Feb-12
Feb-13
Feb-14
Unemployment (lhs)
'Ee' average (rhs)
Feb-15
-3.0
Feb-16
Feb-10
Employment expectations 'Ee' (rhs)
±1 'Ee' standard deviations (rhs)
-3
Feb-11
Feb-12
Feb-13
FTE Employment (LHS)
Feb-14
Feb-15
Feb-16
Social Security Affiliation (RHS)
Prices: inflation fell again in February, but core inflation improved
The increased fall in general inflation (-0.5pp to -0.8% YoY) was due to lower energy and food prices, partly offset by the general
increase in the components of core inflation (+ 0.1pp to 1% YoY)
Graph 59
Graph 60
Inflation rate, headline and core (% YoY)
Inflation by components (contribution in %)*
5
4
4
2
3
2
0
1
-2
0
Feb-10
-1
Feb-10
Feb-11
Feb-12
Feb-13
HICP
Feb-14
Feb-15
Feb-16
HICP Core
Feb-11
Feb-12
HICP Overall
Unprocessed Food
Processed Food
Services
Feb-13
Feb-14
Feb-15
Feb-16
HICP Core
Energy
Non Energy Industrial Goods
* Sources: HAVER and BBVA Research
14 / 15
www.bbvaresearch.com
Europe Economic Watch
18 Mar 2016
DISCLAIMER
This document has been prepared by BBVA Research Department, it is provided for information purposes only and
expresses data, opinions or estimations regarding the date of issue of the report, prepared by BBVA or obtained from or
based on sources we consider to be reliable, and have not been independently verified by BBVA. Therefore, BBVA offers
no warranty, either express or implicit, regarding its accuracy, integrity or correctness.
Estimations this document may contain have been undertaken according to generally accepted methodologies and
should be considered as forecasts or projections. Results obtained in the past, either positive or negative, are no
guarantee of future performance.
This document and its contents are subject to changes without prior notice depending on variables such as the economic
context or market fluctuations. BBVA is not responsible for updating these contents or for giving notice of such changes.
BBVA accepts no liability for any loss, direct or indirect, that may result from the use of this document or its contents.
This document and its contents do not constitute an offer, invitation or solicitation to purchase, divest or enter into any
interest in financial assets or instruments. Neither shall this document nor its contents form the basis of any contract,
commitment or decision of any kind.
In regard to investment in financial assets related to economic variables this document may cover, readers should be
aware that under no circumstances should they base their investment decisions in the information contained in this
document. Those persons or entities offering investment products to these potential investors are legally required to
provide the information needed for them to take an appropriate investment decision.
The content of this document is protected by intellectual property laws. It is forbidden its reproduction, transformation,
distribution, public communication, making available, extraction, reuse, forwarding or use of any nature by any means or
process, except in cases where it is legally permitted or expressly authorized by BBVA.
15 / 15
www.bbvaresearch.com