Spanish Economy: Financial Crisis And Policy Responses
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OFICINA ECONÓMICA DEL PRESIDENTE
PR09OEP012
SPANISH ECONOMY: FINANCIAL CRISIS AND POLICY RESPONSES J. Ignacio Conde Ruiz Director, Department of Economic Policy Economic Bureau of the Prime Minister
Giornate di Studio nFA 2009
1
1994-2008: Convergence with Europe…
OFICINA ECONÓMICA DEL PRESIDENTE
The Spanish economy experienced 14 consecutive years of positive growth, which have allowed it to converge with Europe in per capita terms. GDP - volumes 6 QoQ
5
YoY
4 3 2 1 0 III IV I II III IV I II III IV I II III IV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II
-1 1994
1995
1996
1997
1998
1999
Convergence with Italy in GDP per capita (ppp) terms. GDPper Productivity Hours / total Employment Demographic Spain/Italy inhabitant / hour employment rate factor (*)
2000 2005 2007
83,3 97,3 103,4
88,5 99,5 106,1
(*) Population aged 15-64 / Total population.
91,3 91,4 89,4
101,9 103,1 104,5
101,2 103,8 104,4
2000
2001
2002
2003
2004
2005
2006
2007 2008
Convergence with the EU25 in GDP per capita (ppp) terms. GDPper Productivity Hours / total Employment Demographic Spain/EU25 inhabitant / hour employment rate factor (*)
2000 2005 2007
92,7 97,9 101,6
98,4 97,5 101,7
100,2 99,6 97,9
93,9 99,8 100,1
100,3 101,1 102,1
(*) Population aged 15-64 / Total population.
2
An Over-sized residential construction sector
OFICINA ECONÓMICA DEL PRESIDENTE
Housing investment in Spain, as %GDP (1996-2008)
Housing starts in Spain 250.000
8,0
Spain Euro zone (2008)
7,5 7,0
200.000
6,5
150.000
6,0 5,5
100.000
5,0 4,5 4,0
50.000
3,5 3,0 I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV 1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
0 I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV
2008
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Housing: investment, employment
Housing, Price index
(annual growth rate) 20
20,0 15,0
15
10,0
10
5,0
5
0,0
0
-5,0 -10,0
Ministerio de la Vivienda TINSA INE
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
-5 1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
-10
-15,0 -15
-20,0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I
-25,0 Inv. Vivienda
Ocupados
2002
2003
2004
2005
2006
2007
2008
2009
The decline in the housing sector started in 2006. The international financial crisis turned into a more severe process what could have been a smooth adjustment. 3
OFICINA ECONÓMICA DEL PRESIDENTE
Over-sized residential construction sector: the adjustment is costly in terms of employment … Labour force growth in 2008*
Housing sector as %GDP by country Spain* Euro area France Germany Italy United Kingdom
2007 7,5 5,7 5,6 5,5 4,8 3,3
2008 6,6 5,5 5,6 5,4 4,8 3,0
Variation pp. (IVq 2008 -IVq 2007)
IV q 2008 6,0 5,3 5,5 5,4 4,8 2,9
EU15* Germany Spain France Italy United Kingdom
-1,75 -0,36 -0,18 0,03 -0,09 -0,35
* Spain variation: Iq 2009-IV q2007
1,2 0,4 3,0 0,7 1,4 1,1
*Average: I-III q
Employment 19.600.000
Unemployment (2000-2009)
19.400.000 19.200.000
4.500
19.000.000
4.000
18.800.000 18.600.000
unemployed (thousands) unemployment rate (RHS)
3.500
18.400.000 18.200.000
3.000
18.000.000
2.500 2.000
july 2008 Total
may 2009
dif
%
19.382.121
18.103.487
-1.278.634
(100)
Construction
2.361.177
1.830.059
-531.118
(41,5)
Industry
2.731.068
2.416.364
-314.704
(24,6)
Services
13.150.027
12.644.412
-505.615
(39,5)
1.500
18 17 16 15 14 13 12 11 10 9 8 7
I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I 2000 2001 2002 2003 2004 2005 2006 2007 2008 09
Since July 2008 1,3 million people have lost their jobs. The construction sector is the sector with the highest decline in employment and accounts for 40% of the total decrease.
4
OFICINA ECONÓMICA DEL PRESIDENTE
A highly indebted economy… not all real estate
•Spain has had high investment rates for the last 10 years. It was not exclusively housing, e.g. investment in equipment was larger •The large immigration flow (+4 millions between 2000 and 2007) spurred a rise in capital expenditure to maintain the capital-per-worker ratio.
Investment in equipment (average growth, 1995-2008, %)
Capital-per-worker ratio
10 8 6 4 2 0 Spain
France
Italy
UK
Denmark
EU -15
Austria
Finland
Netherlands
Germany
Source: Eurostat
5
OFICINA ECONÓMICA DEL PRESIDENTE
Some credit developments.....
Credit to households
Credit to businesses 1.000.000 900.000
Services
1.000.000
Servicios (ex (excluding developers) promotor)
900.000
800.000
800.000
700.000 600.000
700.000
Promotor Developers
600.000
500.000 300.000
500.000 400.000
Construction
Construccion
200.000
200.000
100.000 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Fuente BDE
Consumprtion Consumo
300.000
r u s e n ilo m
r u s e n ilo m
400.000
Other Otros
Vivienda Housing
100.000 Manufacturing Industria
0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Fuente BDE
• During 2000-2008 credit grew 8% a year on average, while GDP grew 2.8%. • Mortagage credit accounts for 21% of total credit to households, while the EMU average is 12%. • Construction-related credit is 43% of total business credit. • Credit to other productive activities is 57% of total business credit. 6
...with a major external financing need
OFICINA ECONÓMICA DEL PRESIDENTE
Balance of Payments: financing the deficit (net flow, M€ cumulative last 12 months)
200.000 160.000 120.000
National investment (m.a.4, %PIB)
Short term financing P ortfolio investment
30
Foreign direct investment
28
current account balance
current account balance
26
80.000
24
40.000
22
0
20
-40.000
18 I
-80.000 -120.000 2004
National savings (m.a.4 %PIB)
32
II
III
2006 2005
2006
2007
2008
IV
I
II
III
2007
IV
I
II
III
2008
IV
I 2009
2009
The financial crisis has transformed the way the balance of payments is financed (from portfolio investment-i.e. mortgage-backed securities-to short term financing ECB) The external financing need of the Spanish economy was 9,1% of GDP in 2008, the first decline in 5 years
7
The Spanish banking model at a glance
OFICINA ECONÓMICA DEL PRESIDENTE
A balanced mix of tradition and innovation • A business model focused on long-term customer-bank relationship: The emphasis is on the customer as opposed to the product. 54 % of bank assets are credits, while they only account for 30% of assets in the EMU. The core-business hinges on recurrent operations and multi-product services. Thus: originate-to-hold rather than originate-to-distribute. Borrowers`risk assessment and monitoring are of greater relevance in an originate-to-hold framework.
Productive activities
70%
Actividades Productivas Households non
Fam ilias no hipotecario mortgage
60%
Fam ilias hipotecario Mortgage
50% 40%
25%
36%
30% 20% 10%
25% 28%
39% 13%
10% 15% 19%
4% 11%
12% 12%
11%
5%
3%
9%
9%
8%
9%
6%
10%
15% 12%
10%
0% UEM
Francia
Alemania
Italia
8%
7%
18% 19%
7% España
8
OFICINA ECONÓMICA DEL PRESIDENTE
The Spanish banking model at a glance
The Spanish banking sector is highly competitive: Real lending spread (defined as the difference between real lending rates and real deposit rates) well below the EU average. Concentration, (as measured by the Herfindhal index: the sum of the square of the market shares), is also far below the average for EMU countries.
Real lending spread Real interest rate spread
Herfindhal Index 700
4
600
3,5
500
3 2,5
400
Germany
Spain
Spain
2
300 MU13
200 Italy
100
France Italy
1,5 1 0,5
2008Oct
2008Jul
2008Apr
2008Jan
2007Oct
2007Jul
2007Apr
2007Jan
2006Oct
2006Jul
2006Apr
2006Jan
2005Oct
0 2005Jul
2007
2005Apr
2006
2005Jan
2005
2004Oct
Source: ECB
2004
2004Jul
2003
2004Apr
0
9
OFICINA ECONÓMICA DEL PRESIDENTE
The Spanish banking model at a glance
Securitisation in the Spanish banking model is used mainly for funding as opposed to risk-transfer purposes. Since 2003, deposit growth has been lower than credit growth, causing a growing funding gap. This gap reached 14% of total credit by the end of 2008, while in 2003 it was 9%. The outstanding value of securitization instruments and bonds issued by the Spanish financial system (with data up to the third quarter of 2008) was about 480.000 million € Issuance of structured securities
Funding gap
90 80 70 60
France
50
Germany
40
Italy
30
Spain
20 10 0 2001 2002 2003 2004 2005 2006 2007 2008
10
OFICINA ECONÓMICA DEL PRESIDENTE
The Spanish banking model at a glance
The main vulnerabilities of the Spanish financial system in this crisis are: i) high exposure to the housing sector, which is not experiencing a soft landing … ii) The growing financing gap of the Spanish banking sector and the difficulties to refinance debt in dried-up wholesale funding markets. However, these weaknesses have been dealt with succesfully thanks to the ECB´s unconventional measures and the prevalence of long term debt
Resort to ECB financing 650,000
Maturities of debt of financial institutions.
Bancos españoles (derch)
80,000
BCE (izq)
70,000
600,000
Millions of euros
60,000
250.000
550,000
50,000
200.000
500,000
40,000 30,000
450,000
jul-06 sep-06 nov-06 ene-07 mar-07 may-07 jul-07 sep-07 nov-07 ene-08 mar-08 may-08 jul-08 sep-08 nov-08 ene-09 mar-09 may-09
400,000
150.000
20,000
100.000
10,000
50.000 0 2009
2010
2011
2012
Mas de 2013
11
OFICINA ECONÓMICA DEL PRESIDENTE
One of Europe's most opened economies …
Openness index
50,00
World exports
Imports (% GDP) Importaciones (%PIB) Exportaciones (%PIB) Exports (% GDP)
40,0 30,0 20,0
40,00
10,0 0,0
30,00
-10,0 -20,0
20,00
-30,0 -40,0
10,00
-50,0
World exports Industrial countries Other countries
-60,0
0,00
Spain France Italy España Germany Alemania Francia Italia
UK Reino Unido
US EEUU
Japan Japon
e f m a mjn jl a s o n d e f m a mjn jl a s o n d e f m a mjn jl a s o n d e f m 2006
2007
2008
2009
Exports are still suffering from the global recession and have declined 19%, which has affected goods (-20.5%) and services (-15.9). On the other hand, imports of goods and services decreased 22.3%
12
OFICINA ECONÓMICA DEL PRESIDENTE
The timing of the crisis (1): The Lehman Brothers bankruptcy collapsed financial markets and sharpened the downturn
The Lehman Brothers bankruptcy caused great turmoil in financial markets, leading to a sharp decline in stock prices and a great increase in volatility. 13000 12000 11000 10000 9000 8000 7000 6000
100
Lehman Brothers declares bankruptcy
90 80 70 60 Ibex Dow Jones
Lehman Brothers declares bankruptcy
50 40 30
VIX
20 10 0 06/02/2008 8/26/2008 11/19/2008 02/18/2009 05/14/2009
Spain has implemented internationally-coordinated policies to stabilize the financial system: i) extension of the deposit guarantee coverage (100,000 Euros), ii) Fund for acquisition of Financial assets, iii) State guarantees backing up the new bank debt and iv) recapitalization of troubled banks 13
OFICINA ECONÓMICA DEL PRESIDENTE
The policy response: Fiscal policies aimed at supporting employment and output and resuming credit to the economy
In light of G20 recommendations, all countries have put in place the largest concerted effort to support demand and employment in history Effect on GDP level (%), 2009-2010
Approximate cost of the discretional measures 2008-2009 (%GDP) 2,5 2008
2
2009
1,5 1 0,5
Source: IMF
ly Ita
il z ra B
ia d In
e c n ra F
K U n p Ja
g ra e v A
o ic x e M
a re o K
y n a rm e G
d n a C s a S d ite n U
li tra s u A
Source: OCDE
a in h C
in a p S
0
Spain is one of the countries that have made a greater fiscal effort, as compared to the other main developed economies and to other EU countries. Also, according to the OECD, Spain was the third developed country to implement a stimulus package. The measures included in Plan E could contribute 1% GDP Growth in 2009.
14
OFICINA ECONÓMICA DEL PRESIDENTE
The policy response: Fiscal policies aimed at supporting employment and output and resuming credit to the economy
This stimulus, named Plan E, uses both the revenue side and the expenditure side in order to create a fiscal mix to foster the economic activity. In the revenue side, which amount 2/3 of the total amount, include tax cut in PIT (Personal Income Tax), CIT (Corporate Income Tax) VAT and the elimination of the wealth tax. In the expenditure side is included an ambitious investment plan of 0.8 GDP points, and an industrial fund of 0.3 GDP, to foster the new economic model, including R&D.
2008
2009
Total Fiscal effort
2,5
4,7
Tax cuts
1,8
1,1
0
1,1
0,7
2,5
Expenditure Automatic stabilizers
In addition to this, we should take into account the effect of the automatic stabilizers, amounting 2.5 GDP points only in 2009, according to the Bank of Spain.
15
Rigorous fiscal policy over the booming years pays off: A comfortable margin for countercyclical fiscal policies.
OFICINA ECONÓMICA DEL PRESIDENTE
Deficit (%PIB)
Public debt (%PIB) 140
3,00 España
2,00
Italia
UE27
2008
120
1,00
2009
2010
100
0,00
80
-1,00
60
-2,00
40
-3,00
20
-4,00
0
-5,00
Source: Eurostat.
8 0 2
7 0 2
6 0 2
5 0 2
4 0 2
3 0 2
0 2
1 0 2
0 2
9 1
8 9 1
7 9 1
Spain
Germany
United Kingdom
France
Italy
Source: European Comission, spring 2009.
• Rigorous fiscal policy before the crisis: three years of surplus • Debt/GDP ratio among the lowest in advanced economies. • Countercyclical policies over the recession will only have a limited impact on the ratio. As a result, the expected debt/GDP ratio in 2010 remains well below EU average.
16
OFICINA ECONÓMICA DEL PRESIDENTE
The timing of the crisis in Spain: the current situation….
1Q 2009 (QoQ) GDP volumes Final consumption expenditure Household and NPISH final consumption expenditure
2008 GDP volumes Final consumption expenditure Household and NPISH final consumption expenditure Final consumption expenditure of general government
Gross capital formation Gross fixed capital formation
Exports of goods and services Imports of goods and services GDP per capita PPP
Spain
Italy
1,2 1,5
-1,0 -0,5
0,1 5,3 -2,8 -3,0 0,7 -2,5 104
-0,9 0,6 -4,2 -3,0 -3,7 -4,5 100
Final consumption expenditure of general government
Gross capital formation Gross fixed capital formation
Exports of goods and services Imports of goods and services
1Q 2009 (YoY) GDP volumes Final consumption expenditure Household and NPISH final consumption expenditure Final consumption expenditure of general government
Gross capital formation Gross fixed capital formation
Exports of goods and services Imports of goods and services
Spain
Italy
-1,9 -1,3 -1,7 -0,1 -4,4 -4,2 -11,9 -10,9
-2,6 -0,8 -1,0 -0,3 -6,8 -5,0 -11,8 -9,2
Spain
Italy
-3,0 -1,7 -4,0 5,4 -13,3 -13,1 -19,0 -23,3
-6,0 -1,7 -2,5 0,7 -15,2 -12,6 -21,7 -17,0
•The crisis hit Italian output harder than Spanish output. This can be observed both in quarter-on-quarter growth (-1,9% vs. -2,6%) and in year-on-year growth (-3% vs. -6%). •In terms of employment (LFS) the opposite is true. In the first quarter of 2009, Spanish employment has decreased -6,4% compared with the same quarter of 2008, while it Italy it has decreased only -0,9%. 17
PR09OEP012
SPANISH ECONOMY: FINANCIAL CRISIS AND POLICY RESPONSES J. Ignacio Conde Ruiz Director, Department of Economic Policy Economic Bureau of the Prime Minister
Giornate di Studio nFA 2009
1
1994-2008: Convergence with Europe…
OFICINA ECONÓMICA DEL PRESIDENTE
The Spanish economy experienced 14 consecutive years of positive growth, which have allowed it to converge with Europe in per capita terms. GDP - volumes 6 QoQ
5
YoY
4 3 2 1 0 III IV I II III IV I II III IV I II III IV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II
-1 1994
1995
1996
1997
1998
1999
Convergence with Italy in GDP per capita (ppp) terms. GDPper Productivity Hours / total Employment Demographic Spain/Italy inhabitant / hour employment rate factor (*)
2000 2005 2007
83,3 97,3 103,4
88,5 99,5 106,1
(*) Population aged 15-64 / Total population.
91,3 91,4 89,4
101,9 103,1 104,5
101,2 103,8 104,4
2000
2001
2002
2003
2004
2005
2006
2007 2008
Convergence with the EU25 in GDP per capita (ppp) terms. GDPper Productivity Hours / total Employment Demographic Spain/EU25 inhabitant / hour employment rate factor (*)
2000 2005 2007
92,7 97,9 101,6
98,4 97,5 101,7
100,2 99,6 97,9
93,9 99,8 100,1
100,3 101,1 102,1
(*) Population aged 15-64 / Total population.
2
An Over-sized residential construction sector
OFICINA ECONÓMICA DEL PRESIDENTE
Housing investment in Spain, as %GDP (1996-2008)
Housing starts in Spain 250.000
8,0
Spain Euro zone (2008)
7,5 7,0
200.000
6,5
150.000
6,0 5,5
100.000
5,0 4,5 4,0
50.000
3,5 3,0 I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV 1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
0 I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV
2008
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Housing: investment, employment
Housing, Price index
(annual growth rate) 20
20,0 15,0
15
10,0
10
5,0
5
0,0
0
-5,0 -10,0
Ministerio de la Vivienda TINSA INE
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
-5 1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
-10
-15,0 -15
-20,0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I
-25,0 Inv. Vivienda
Ocupados
2002
2003
2004
2005
2006
2007
2008
2009
The decline in the housing sector started in 2006. The international financial crisis turned into a more severe process what could have been a smooth adjustment. 3
OFICINA ECONÓMICA DEL PRESIDENTE
Over-sized residential construction sector: the adjustment is costly in terms of employment … Labour force growth in 2008*
Housing sector as %GDP by country Spain* Euro area France Germany Italy United Kingdom
2007 7,5 5,7 5,6 5,5 4,8 3,3
2008 6,6 5,5 5,6 5,4 4,8 3,0
Variation pp. (IVq 2008 -IVq 2007)
IV q 2008 6,0 5,3 5,5 5,4 4,8 2,9
EU15* Germany Spain France Italy United Kingdom
-1,75 -0,36 -0,18 0,03 -0,09 -0,35
* Spain variation: Iq 2009-IV q2007
1,2 0,4 3,0 0,7 1,4 1,1
*Average: I-III q
Employment 19.600.000
Unemployment (2000-2009)
19.400.000 19.200.000
4.500
19.000.000
4.000
18.800.000 18.600.000
unemployed (thousands) unemployment rate (RHS)
3.500
18.400.000 18.200.000
3.000
18.000.000
2.500 2.000
july 2008 Total
may 2009
dif
%
19.382.121
18.103.487
-1.278.634
(100)
Construction
2.361.177
1.830.059
-531.118
(41,5)
Industry
2.731.068
2.416.364
-314.704
(24,6)
Services
13.150.027
12.644.412
-505.615
(39,5)
1.500
18 17 16 15 14 13 12 11 10 9 8 7
I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I 2000 2001 2002 2003 2004 2005 2006 2007 2008 09
Since July 2008 1,3 million people have lost their jobs. The construction sector is the sector with the highest decline in employment and accounts for 40% of the total decrease.
4
OFICINA ECONÓMICA DEL PRESIDENTE
A highly indebted economy… not all real estate
•Spain has had high investment rates for the last 10 years. It was not exclusively housing, e.g. investment in equipment was larger •The large immigration flow (+4 millions between 2000 and 2007) spurred a rise in capital expenditure to maintain the capital-per-worker ratio.
Investment in equipment (average growth, 1995-2008, %)
Capital-per-worker ratio
10 8 6 4 2 0 Spain
France
Italy
UK
Denmark
EU -15
Austria
Finland
Netherlands
Germany
Source: Eurostat
5
OFICINA ECONÓMICA DEL PRESIDENTE
Some credit developments.....
Credit to households
Credit to businesses 1.000.000 900.000
Services
1.000.000
Servicios (ex (excluding developers) promotor)
900.000
800.000
800.000
700.000 600.000
700.000
Promotor Developers
600.000
500.000 300.000
500.000 400.000
Construction
Construccion
200.000
200.000
100.000 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Fuente BDE
Consumprtion Consumo
300.000
r u s e n ilo m
r u s e n ilo m
400.000
Other Otros
Vivienda Housing
100.000 Manufacturing Industria
0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Fuente BDE
• During 2000-2008 credit grew 8% a year on average, while GDP grew 2.8%. • Mortagage credit accounts for 21% of total credit to households, while the EMU average is 12%. • Construction-related credit is 43% of total business credit. • Credit to other productive activities is 57% of total business credit. 6
...with a major external financing need
OFICINA ECONÓMICA DEL PRESIDENTE
Balance of Payments: financing the deficit (net flow, M€ cumulative last 12 months)
200.000 160.000 120.000
National investment (m.a.4, %PIB)
Short term financing P ortfolio investment
30
Foreign direct investment
28
current account balance
current account balance
26
80.000
24
40.000
22
0
20
-40.000
18 I
-80.000 -120.000 2004
National savings (m.a.4 %PIB)
32
II
III
2006 2005
2006
2007
2008
IV
I
II
III
2007
IV
I
II
III
2008
IV
I 2009
2009
The financial crisis has transformed the way the balance of payments is financed (from portfolio investment-i.e. mortgage-backed securities-to short term financing ECB) The external financing need of the Spanish economy was 9,1% of GDP in 2008, the first decline in 5 years
7
The Spanish banking model at a glance
OFICINA ECONÓMICA DEL PRESIDENTE
A balanced mix of tradition and innovation • A business model focused on long-term customer-bank relationship: The emphasis is on the customer as opposed to the product. 54 % of bank assets are credits, while they only account for 30% of assets in the EMU. The core-business hinges on recurrent operations and multi-product services. Thus: originate-to-hold rather than originate-to-distribute. Borrowers`risk assessment and monitoring are of greater relevance in an originate-to-hold framework.
Productive activities
70%
Actividades Productivas Households non
Fam ilias no hipotecario mortgage
60%
Fam ilias hipotecario Mortgage
50% 40%
25%
36%
30% 20% 10%
25% 28%
39% 13%
10% 15% 19%
4% 11%
12% 12%
11%
5%
3%
9%
9%
8%
9%
6%
10%
15% 12%
10%
0% UEM
Francia
Alemania
Italia
8%
7%
18% 19%
7% España
8
OFICINA ECONÓMICA DEL PRESIDENTE
The Spanish banking model at a glance
The Spanish banking sector is highly competitive: Real lending spread (defined as the difference between real lending rates and real deposit rates) well below the EU average. Concentration, (as measured by the Herfindhal index: the sum of the square of the market shares), is also far below the average for EMU countries.
Real lending spread Real interest rate spread
Herfindhal Index 700
4
600
3,5
500
3 2,5
400
Germany
Spain
Spain
2
300 MU13
200 Italy
100
France Italy
1,5 1 0,5
2008Oct
2008Jul
2008Apr
2008Jan
2007Oct
2007Jul
2007Apr
2007Jan
2006Oct
2006Jul
2006Apr
2006Jan
2005Oct
0 2005Jul
2007
2005Apr
2006
2005Jan
2005
2004Oct
Source: ECB
2004
2004Jul
2003
2004Apr
0
9
OFICINA ECONÓMICA DEL PRESIDENTE
The Spanish banking model at a glance
Securitisation in the Spanish banking model is used mainly for funding as opposed to risk-transfer purposes. Since 2003, deposit growth has been lower than credit growth, causing a growing funding gap. This gap reached 14% of total credit by the end of 2008, while in 2003 it was 9%. The outstanding value of securitization instruments and bonds issued by the Spanish financial system (with data up to the third quarter of 2008) was about 480.000 million € Issuance of structured securities
Funding gap
90 80 70 60
France
50
Germany
40
Italy
30
Spain
20 10 0 2001 2002 2003 2004 2005 2006 2007 2008
10
OFICINA ECONÓMICA DEL PRESIDENTE
The Spanish banking model at a glance
The main vulnerabilities of the Spanish financial system in this crisis are: i) high exposure to the housing sector, which is not experiencing a soft landing … ii) The growing financing gap of the Spanish banking sector and the difficulties to refinance debt in dried-up wholesale funding markets. However, these weaknesses have been dealt with succesfully thanks to the ECB´s unconventional measures and the prevalence of long term debt
Resort to ECB financing 650,000
Maturities of debt of financial institutions.
Bancos españoles (derch)
80,000
BCE (izq)
70,000
600,000
Millions of euros
60,000
250.000
550,000
50,000
200.000
500,000
40,000 30,000
450,000
jul-06 sep-06 nov-06 ene-07 mar-07 may-07 jul-07 sep-07 nov-07 ene-08 mar-08 may-08 jul-08 sep-08 nov-08 ene-09 mar-09 may-09
400,000
150.000
20,000
100.000
10,000
50.000 0 2009
2010
2011
2012
Mas de 2013
11
OFICINA ECONÓMICA DEL PRESIDENTE
One of Europe's most opened economies …
Openness index
50,00
World exports
Imports (% GDP) Importaciones (%PIB) Exportaciones (%PIB) Exports (% GDP)
40,0 30,0 20,0
40,00
10,0 0,0
30,00
-10,0 -20,0
20,00
-30,0 -40,0
10,00
-50,0
World exports Industrial countries Other countries
-60,0
0,00
Spain France Italy España Germany Alemania Francia Italia
UK Reino Unido
US EEUU
Japan Japon
e f m a mjn jl a s o n d e f m a mjn jl a s o n d e f m a mjn jl a s o n d e f m 2006
2007
2008
2009
Exports are still suffering from the global recession and have declined 19%, which has affected goods (-20.5%) and services (-15.9). On the other hand, imports of goods and services decreased 22.3%
12
OFICINA ECONÓMICA DEL PRESIDENTE
The timing of the crisis (1): The Lehman Brothers bankruptcy collapsed financial markets and sharpened the downturn
The Lehman Brothers bankruptcy caused great turmoil in financial markets, leading to a sharp decline in stock prices and a great increase in volatility. 13000 12000 11000 10000 9000 8000 7000 6000
100
Lehman Brothers declares bankruptcy
90 80 70 60 Ibex Dow Jones
Lehman Brothers declares bankruptcy
50 40 30
VIX
20 10 0 06/02/2008 8/26/2008 11/19/2008 02/18/2009 05/14/2009
Spain has implemented internationally-coordinated policies to stabilize the financial system: i) extension of the deposit guarantee coverage (100,000 Euros), ii) Fund for acquisition of Financial assets, iii) State guarantees backing up the new bank debt and iv) recapitalization of troubled banks 13
OFICINA ECONÓMICA DEL PRESIDENTE
The policy response: Fiscal policies aimed at supporting employment and output and resuming credit to the economy
In light of G20 recommendations, all countries have put in place the largest concerted effort to support demand and employment in history Effect on GDP level (%), 2009-2010
Approximate cost of the discretional measures 2008-2009 (%GDP) 2,5 2008
2
2009
1,5 1 0,5
Source: IMF
ly Ita
il z ra B
ia d In
e c n ra F
K U n p Ja
g ra e v A
o ic x e M
a re o K
y n a rm e G
d n a C s a S d ite n U
li tra s u A
Source: OCDE
a in h C
in a p S
0
Spain is one of the countries that have made a greater fiscal effort, as compared to the other main developed economies and to other EU countries. Also, according to the OECD, Spain was the third developed country to implement a stimulus package. The measures included in Plan E could contribute 1% GDP Growth in 2009.
14
OFICINA ECONÓMICA DEL PRESIDENTE
The policy response: Fiscal policies aimed at supporting employment and output and resuming credit to the economy
This stimulus, named Plan E, uses both the revenue side and the expenditure side in order to create a fiscal mix to foster the economic activity. In the revenue side, which amount 2/3 of the total amount, include tax cut in PIT (Personal Income Tax), CIT (Corporate Income Tax) VAT and the elimination of the wealth tax. In the expenditure side is included an ambitious investment plan of 0.8 GDP points, and an industrial fund of 0.3 GDP, to foster the new economic model, including R&D.
2008
2009
Total Fiscal effort
2,5
4,7
Tax cuts
1,8
1,1
0
1,1
0,7
2,5
Expenditure Automatic stabilizers
In addition to this, we should take into account the effect of the automatic stabilizers, amounting 2.5 GDP points only in 2009, according to the Bank of Spain.
15
Rigorous fiscal policy over the booming years pays off: A comfortable margin for countercyclical fiscal policies.
OFICINA ECONÓMICA DEL PRESIDENTE
Deficit (%PIB)
Public debt (%PIB) 140
3,00 España
2,00
Italia
UE27
2008
120
1,00
2009
2010
100
0,00
80
-1,00
60
-2,00
40
-3,00
20
-4,00
0
-5,00
Source: Eurostat.
8 0 2
7 0 2
6 0 2
5 0 2
4 0 2
3 0 2
0 2
1 0 2
0 2
9 1
8 9 1
7 9 1
Spain
Germany
United Kingdom
France
Italy
Source: European Comission, spring 2009.
• Rigorous fiscal policy before the crisis: three years of surplus • Debt/GDP ratio among the lowest in advanced economies. • Countercyclical policies over the recession will only have a limited impact on the ratio. As a result, the expected debt/GDP ratio in 2010 remains well below EU average.
16
OFICINA ECONÓMICA DEL PRESIDENTE
The timing of the crisis in Spain: the current situation….
1Q 2009 (QoQ) GDP volumes Final consumption expenditure Household and NPISH final consumption expenditure
2008 GDP volumes Final consumption expenditure Household and NPISH final consumption expenditure Final consumption expenditure of general government
Gross capital formation Gross fixed capital formation
Exports of goods and services Imports of goods and services GDP per capita PPP
Spain
Italy
1,2 1,5
-1,0 -0,5
0,1 5,3 -2,8 -3,0 0,7 -2,5 104
-0,9 0,6 -4,2 -3,0 -3,7 -4,5 100
Final consumption expenditure of general government
Gross capital formation Gross fixed capital formation
Exports of goods and services Imports of goods and services
1Q 2009 (YoY) GDP volumes Final consumption expenditure Household and NPISH final consumption expenditure Final consumption expenditure of general government
Gross capital formation Gross fixed capital formation
Exports of goods and services Imports of goods and services
Spain
Italy
-1,9 -1,3 -1,7 -0,1 -4,4 -4,2 -11,9 -10,9
-2,6 -0,8 -1,0 -0,3 -6,8 -5,0 -11,8 -9,2
Spain
Italy
-3,0 -1,7 -4,0 5,4 -13,3 -13,1 -19,0 -23,3
-6,0 -1,7 -2,5 0,7 -15,2 -12,6 -21,7 -17,0
•The crisis hit Italian output harder than Spanish output. This can be observed both in quarter-on-quarter growth (-1,9% vs. -2,6%) and in year-on-year growth (-3% vs. -6%). •In terms of employment (LFS) the opposite is true. In the first quarter of 2009, Spanish employment has decreased -6,4% compared with the same quarter of 2008, while it Italy it has decreased only -0,9%. 17
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