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Strengths and forecasts

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Presentation on theme: "Strengths and forecasts"— Presentation transcript:

1 Strengths and forecasts
Spain’s Equity Story Strengths and forecasts of the Spanish economy Madrid, July 2011

2 Situation

3 Spain’s GDP Year-on-year variation rate (%)
Annual variation % 2009 -3.7 2010 -0.1 2011 (p) 0.8 Year-on-year variation % 2009 -3.7 2010 -0.1 2011 (p) 0.8 (p) Projection Source: CEC based on INE

4 Spain, well positioned to face the new era

5 Spain has tripled its weight in EU15
Share of Nominal GDP 1960 Share of Nominal GDP 2010 65,4% 12,2% 18,7% Spain 3,7% France Italy Rest of EU15 59,2% 13,9% 17,5% Spain 9,4% France Italy Rest of EU15 Source: European Comission and CEC

6 Population has grown over 50% in the last 50 years
Variations in Population in the Last 50 Years In the last 10 years, the labour force has increased 27%, 5 times higher than the European average. Since 1994 Spain represents 1/3 of the total growth on labour force in the EU. Source: Eurostat

7 excl. building industry
In the last years we have won international respect… even excluding the building industry GDP (Based on Euroconstants; 1993=100) 100 120 140 160 1993 1995 1997 1999 2001 2003 2005 2007 2009 European Core* SPAIN Since 1994, Spain’s GDP has increased over 60%, 2.3 times higher than in European core countries… … this sets Spain as 4th economy regarding per capita income and 5th in size… … with the highest investment rate excl. housing (infrastructure & capital goods). SPAIN excl. building industry 7 *European core countries: France, Germany, Italy, Austria and The Netherlands Source: IMF forecasts

8 Fourth largest GDP per capita among the foremost EU15 countries
Source: Eurostat

9 Spain’s Strenghts

10 Attractive country to Institutional Investment
thanks to high profitability for the shareholder Total Shareholder Return % Before the crisis, profitability was 3 times higher than the rest of European countries. During the crisis, it was twice as high. Source: Wharton Business School

11 Spanish companies account for 12.1% of the
European EuroStoxx 300 index EuroStoxx 300 (Securities Exchange Index for the Euro Area): share by listed company nationality Factors: Spain’s main markets include 1,100 million people (Europe and Latin America) and the country has high productivity levels compared to its competitors. Source: Factset

12 Labour Productivity by Company Size
Nr. of workers 1 to 9 10 to 19 20 to 49 50 to 249 > 250 Spain Germany UK base 100 = average productivity of firms in USA Source: OECD Compendium of Productivity. Formulated by CEC

13 Invariant share of world export market
The exporting rate is still very high and in the last term it has increased 23% since 2010. Source: CEC based on WTO data.

14 Spanish companies’ leadership

15 It has leading companies in key industries:
sucessful diversification into non-tourist services Other services To business Tourism Spanish Service Exports by Industry (% total, 2000) Other services To business Tourism Spanish Service Exports by Industry (% total, 2010) Non-tourist services world exports grew by 40% in the last decade (yearly expansion average was 7%).

16 … advancing in high added value sectors, such as in SERVICES…
Distribution and apparel: the world ready-to-wear leader company is Spanish, and three Spanish firms are among the top 50 retailers world-wide. Biotechnology: 3rd place world-wide in agrobiotechnology, and 5th place world-wide in biochemistry and molecular biology. Hotel and restaurant trade: with the recent trend toward innovation in restaurant services, Spain has taken 5th place in the number of Michelin stars. Finance and insurance: 4 Spanish financial institutions are among the 50 most reliable in the world, and 2 Spanish insurers rank among the largest in the world. E-Health, e-government: significant advances place Spain 9th on the list of the world’s most highly developed countries

17 … or in CONSTRUCTION, ENERGY and MANUFACTURING industries…
Infrastructure: 7 Spanish companies manage and/or build nearly 40% of the major transport franchises in the world, mainly airports, ports and motorways. Renewable energies: 2 of the 10 major companies are Spanish. Environment, water treatment and desalination: Spain produces more desalinated water than any other country in the world. Automobile and automobile components industry: Spain is the number one manufacturer of automobile cladding world-wide and the eighth largest vehicle manufacturer world-wide. Aerospace: Spain has Europe’s 5th highest turnover and very high investment in R&D.

18 … and also on the new information and communication technologies (ICT)
3 of every 5 flights world-wide would be controlled using Spanish air navigation systems Spain is a world leader and a European benchmark in mobile telephone and broadband coverage 9.1% ICT market growth in Spain in the last 5 years. Investment in innovation (R&D+I) in ICT has almost doubled (x1.9) in the period between One of the 5 largest telecommunications companies is Spanish.

19 Maintaining its leadership in TOURISM,
Tourist Industry Revenues in 2009 (billion euros) Tourist Industry Contribution to GDP (% in 2006) 5 firms are among the 30 most important hotel companies in the world Source: AFI, World Tourism Organisation and Tourism in OECD countries 2008.

20 Imbalances under correction

21 Private sector deleveraging, banking sector consolidation, and labour market flexibility
Adjustments underway: after 2nd year, a surplus (or financing capacity) of over 4% of GDP was recorded. Foreign indebtedness by the private sector

22 Investment Rate (% GDP) Broken Down by Components
(Mean ) Housing Non-housing Spain Germany France Italy UK Source: National Treasuries

23 ... also with one of the best infrastructure networks and its position as strategic enclave
Km of Motorway per Million Inhabitants Source: Eurostat, Adif (Spanish railway and infrastruture agency), McKinsey andCEC.

24 Adjustment in housing investment is complete,
having reached pre-boom levels Housing investment (% GDP) 9.0% 7.5% 6.0% 4.5% 3.0% mar- jun- sep- dec- mar- jun- sep- dec- mar- jun- sep- dec- mar- 95 96 97 98 00 01 02 03 05 06 07 08 10 Source: WTO formulated by CEC. 24

25 Adjustment in housing Unsold Housing Stock (thousand units)
Source: Ministry of Internal Development and CEC.

26 Labour market flexibility
Private sector deleveraging, banking sector consolidation, and labour market flexibility Adjustments underway: after 2nd year, a surplus (or financing capacity) of over 4% of GDP was recorded. Foreign indebtedness by the private sector Reform on September and current collective bargaining. Labour market flexibility

27 Compared adjustment of cycle and unemployment
between Spain and the average of France and Germany

28 Active employment rate yearly variation %
Unemployment rate workforce % Source: CEC baded on INE data and own projections.

29 Labour market flexibility
Private sector deleveraging, banking sector consolidation, and labour market flexibility Adjustments underway: after 2nd year, a surplus (or financing capacity) of over 4% of GDP was recorded. Foreign indebtedness by the private sector Reform on September and current collective bargaining. Labour market flexibility Restructuring, recapitalisation and a change in savings bank governance underway. Banks solvency

30 reduction of the excess of installed capacity
Adjustment plan: reduction of the excess of installed capacity Spain: Operational Branches (Mar-1990=100) Financing system: mortages approved per office and year (units) Banks Savings banks Source: Bank of Spain and INE, sep 2010 Source: Bank of Spain and INE, july 2011 30

31 Core capital in financial institutions
Adjustment plan: advanced process of losses and capitalization recognition Core capital in financial institutions %APR Provisions of the financial institutions constituted since 2008 % GDP Core capital Basic core capital Source: Bank of Spain, july 2011 Source: Bank of Spain, may 2011 31

32 Pension system sustainability Public finance sustainability
Reforms with an impact in the short term: pension system and public finance solvency Market concerns Reform Pension system sustainability Directed toward reducing mid- term pension spending (-2/4 pp GDP) Public finance sustainability Ambitious fiscal consolidation plan underway: towards 3% budgetary deficit by 2013. …although there is a higher risk for autonomous communities.

33 Budget balance and public debt
(% GDP) Public Debt (% GDP) Structural Total Euro Area Germany Spain Source: European Comission Source: Ministry of Economy, july 2011

34 Diversification of maturity dates on sovereign debt:
long mean term Treasure Debt Average Maturity (years) Source: AFI, AMECO and Bloomerg

35 Conclusion

36 …with a big impact on growth on the long term
Spain-Euro Area Differential – YoY Growth Rates After structural reforms on track, back to positive growth differentials whith Euro Zone. Main reforms on track: Fiscal consolidation: Target: public deficit of 3% GDP in 2013 (from 11% GDP in 2011). More than 60% of the adjustment to be delivered before 2012. Financial sector Restructuring process of saving banks (from 45 to 17 entities in a 6 month process) Reinforcement of the financial system (feb 2011): (i) increasing the capital requirements of Spanish institutions(8-10%); ii) encourage them to raise private capital; (iii) Timetable: 30th September is the deadline for its implementation. Public financial support from FROB available. Labour market: a set of measures towards… Fostering permanent and training contracts Clarifying grounds for objective dismissals. Greater internal flexibility at firm level: workers and firms able to opt-out from conditions imposed by collective bargaining agreement Pension system Gradual increase in the statutory retirement age from 65 to 67 Additional restrictions to early retirement Reinforcement the relation between contributions and benefits ( example: the number of years of career used to compute the pension is enlarged from 15 to 25) Collective bargaining (in negotiation process) Product market regulation, main reforms: Shorter business creation period to between 1 and 5 days, from an average of 33 (approved) Transposition of Services Directive on permits and licenses, and removal of local licenses (approved) Professional services: Liberalizing access, fostering competition and mobility (to be approved in spring 2011). Industrial, R&D and energy policy. Forthcoming policy measures, after the broad agreement between Government and trade unions (february 2011) to: Reinforce the relative weight of industrial activity in the Spanish economy. Overcome the Spanish economy’s dependence on carbon and reach a sustainable mix of energy sources. Underline the importance of R+D+I to consolidate a sustainable growth pattern. Datos del gráfico: Pre-crisis  años : (a) crecimiento España: 3%; (b) Crecimiento Zona Euro: 2% Crisis años : (a) crec. España: -1,9%; (b) Crec. Zona Euro: -1,2% Reformas  años : (a) crec. España: 1,22%; (b) Crec. Zona Euro: 1,69% Medium and long term Promedio ponderado de: años : (a) crec. España:1,82 %; (b) Crec. Zona Euro: 1,80% (PIB potencial de la OCDE): (a) crec. España: 2,3%; (b) Crec. Zona Euro: 1,7% Source: FMI & OECD

37 The challenge is to increase the growth potential
The Spanish economy is undergoing a change in its growth patterns; facing the new era: Spain has good international position and reputation, especially its large-scale companies, leading in key sectors and more productive than their European equals. It has a high potential talent (it is placed 11th in the world ranking according to “Mapping Global Talent”) The imbalances accumulated in the past are undergoing an advanced adjustment. The reforms underway are directed at enhancing the growth potential in the mid-long term. In order to culminate the process, the reforms must conclude successfully and the adjusments plans underway must be followed rigorously.

38 Strengths and forecasts
Spain’s Equity Story Strengths and forecasts of the Spanish economy Madrid, July 2011


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