Research
Julian Callow Chief International Economist julian.callow@barclays.com +44 20 777 31369
Can Europe shed ‘zombie’ status? July 2013
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 114
Fiscal adjustment: OECD ‘headwind’ to lessen in 2014 Fiscal impulse: change in structural budget balance/GDP ratio (pp) Change in structural budget balance/ GDP ratio pp Austria Belgium Finland France Germany Greece Ireland Italy NL Portugal Spain Others Euro area Japan Sweden UK (FY) US OECD
2010
2011
2012 E
2013 F
2014 F
€A weight
0.2 0.4 -1.2 0.3 -1.3 6.3 1.7 0.7 0.7 0.2 1.4 ... 0.2 -0.5 0.2 0.6 0.6 0.3
1.0 -0.3 0.9 1.4 1.3 3.6 1.8 0.1 0.1 1.7 0.3 ... 0.9 -0.6 -0.7 2.1 1.0 0.8
0.4 0.9 -0.5 1.3 0.5 3.9 1.4 2.1 1.1 2.1 2.0 ... 1.3 -0.6 -0.2 2.1 1.0 0.9
0.0 1.6 0.4 1.7 0.0 2.2 0.6 0.7 1.3 1.5 2.0 ... 1.0 -1.0 -0.8 0.6 1.8 1.0
0.3 0.6 0.6 0.7 0.0 2.1 2.1 0.2 0.9 1.4 0.9 ... 0.5 0.2 0.1 1.1 0.5 0.5
3.1% 3.8% 1.9% 21.4% 26.8% 2.6% 1.8% 16.9% 6.4% 1.8% 11.7% 1.8% 100.0% ... ... ... ... ...
Source: OECD, European Commission, IMF, Barclays, BdI, BdE Last updated: 19 June 2013
2
The debt issue: private de-leveraging but aggregate rises Outstanding gross interest paying liabilities of non-financial sectors (% GDP) US*
Euro area 450
450
450
Total debt
400
Japan**
Total debt ex government
400 350
350
300
300
300
250
250
250
200
200
200
150
150
150
100
100
100
50
50
50
0
0 70
78
86
94
02
Total ex government
400
Total ex government
350
0 1916 31 46 61 76 91 06
Total debt
Total debt
10
64 69 74 79 84 89 94 99 04 09
Source: Barclays Research, Haver Analytics, BIS, Census * thin lines show historic series from Census Bureau; ** thin lines show the previous series
3
Financial conditions can overcome fiscal consolidation Financial stress still lower
Euro area Composite Indicator of Systemic Stress (ECB, LHS) 0.9
US Financial Stress Index (Cleveland Fed, RHS)
Impact of financial conditions (LHS)
US 3.0
Impact of fiscal conditions (LHS)
Euro area
4
Combined impact of fin. & fiscal conditions
Japan
2.5
0.8
Stronger outlook for ‘G3’ GDP
Financial conditions rise
2
2.0
6
US-EA-JP GDP (% q/ q saar RHS)
EM Asia 2
0.7 1.5
1
3
0
0
-1
-3
0.6 1.0 0
0.5
0.5
0.4
0.0 -2
-0.5 0.3
-1.0 0.2 -1.5 0.1
-4
Barclays forecast for 'G3' real GDP growth
Impact of fiscal, financial conditions on real GDP
-2
-2.0
-6
Index
0.0
-2.5
-6
91 93 95 97 99 01 03 05 07 09 11 13
-3 95
98
01
04
Source: Barclays Research, Markit, Haver Updated: July 2, 2013
4
07
10
13
-9 99
01
03
05
07
09
11
13
Financial conditions overcome fiscal drag: regional analysis US
10
% q/ q saar
Euro area
US GDP (LHS) FFCI (LHS) US FCI (RHS)
5
Euro area GDP (LHS) FFCI (LHS) EA FCI (RHS)
Index 5
4
4
4
6
3
2
3
4
2
2
1 0
-2
-1
Forecast
0
2
0
1
-2
0 -4
Forecast
8
% q/ q saar 6
Index
-1
-2
-6
-3
-8
-3
-8
-4
-10
-4
-10
-5
-12
-5
-4
-6
95
98
01
04
07
10
13
00
03
06
09
-2
12
• In the FFCI (Financial & Fiscal Conditions Indicator) we combine the FCIs with the change in the structural budget deficit, as a second explanatory variable, to estimate real GDP
Note: The methodology shown here is based on that from the OECD, and includes the bank loan officer survey Source: Barclays Research, OECD, Haver Analytics
Updated: 2 July, 2013
5
A recent unwelcome rise in bond yields
10y sovereign yields (%)
10y sovereign yields minus nominal trend growth
Senior bank debt yields (%)
(real potential growth+5Y inflation expectations) 10
Portugal Spain Italy Ireland EA GDP-weighted(ex Greece) Germany Banking senior (Euro aggregate)
14 12
9
8
6 --------Monetary union--------
10 6
3
8 4
6
0
4 2
Italy
-3
Spain
2
France Germany
0 06
07
08
09
10
11
12
13
0 Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Italy Spain France Germany
Latest: 2 July 2013
-6 93 95 97 99 01 03 05 07 09 11 13
Source: Barclays Research, Haver Analytics
l
6
Global forecasts – Barclays’ projections for 2013-2014 Actual
Real GDP (% y/ y) weight* Global 100.0 Advanced 50.6 US 21.3 Canada 2.0 Australia 1.3 Japan 6.2 Euro area 14.9 France 3.0 Germany 4.3 Greece 0.4 Ireland 0.3 Italy 2.4 Netherlands 0.9 Portugal 0.3 Spain 1.9 UK 3.1 Switzerland 0.5 Emerging 49.4 Brazil 3.2 Mexico 2.4 China 17.8 India* * 6.6 Indonesia 1.7 South Korea 2.2 Taiwan 1.2 Poland 1.1 Russia* * * 3.4 Turkey 1.5 South Africa 0.8
2012 3.1 1.2 2.2 1.7 3.6 1.9 -0.5 0.0 0.9 -6.4 0.9 -2.4 -1.3 -3.2 -1.4 0.2 1.0 5.0 0.9 3.9 7.8 5.1 6.2 2.0 1.3 1.9 3.4 2.2 2.5
Barclays forecast (consensus) 2013 3.0 1.0 1.6 1.7 2.7 2.1 -0.5 -0.1 0.5 -4.3 0.9 -1.7 -1.0 -2.6 -1.7 0.9 1.4 5.0 2.3 2.5 7.4 5.4 5.8 2.9 3.0 0.9 3.0 3.7 2.3
Global manufacturing confidence
2014 (3.2) (1.1) (1.9) (1.7) (2.5) (1.9)
(-0.5) (-0.3) (0.5) (-4.9) (0.8) (-1.7) (-0.8) (-2.6) (-1.6) (0.9) (1.4) (5.3) (3.0) (3.2) (7.8) (6.0) (6.1) (2.6) (2.9) (1.2) (2.9) (3.9) (2.5)
3.8 1.9 2.3 2.1 2.3 2.1 1.3 1.1 2.0 0.2 2.2 0.8 0.9 0.3 0.6 1.8 1.4 5.6 2.7 4.2 7.4 6.7 5.8 3.9 3.7 2.9 3.5 4.9 3.2
(3.9)
6m/ 6m change, saar 15
(1.9)
normalised diffusion balance 2
(2.7)
10
(2.4)
1
(2.8)
5
0
(1.5) 0
(0.9) (0.6)
-1
-5
(1.6) -10
(-0.9)
-2 Global industrial production* , LHS
-3
Global manufacturing confidence -15 (Barclays), RHS New orders less fin. goods inventories -20 (Barclays), RHS 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
(1.9) (0.4) (0.6) (0.1) (0.3)
Note: *Barclays aggregate. Source: Barclays Research, Markit, Haver
(1.7) (1.6)
Global GDP indicator vs GDP growth
(5.8) (3.6)
6
% q/ q saar
Barclays' global GDP forecasts (to Q4 2014)
(4.0) 4
(7.8)
2
(6.8) (6.2)
0
(3.5) (3.9)
-2
(2.6)
-4
(3.6)
Q2 13 E
-6
(4.9)
-8
(3.4)
Source: Haver, Barclays Research, Consensus Economics. Last updated: 28 June 2013 Consensus forecasts are as of June 2013 except for Latin America and EM Europe countries which are for May 2013. **Consensus forecasts for India are for FY; ***Consensus inflation for Russia is % change Dec/Dec. Note: *Based on the IMF PPP based GDP weights, 5yr centred moving averages;
7
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Global GDP*
Global GDP indicator*
Note: *Barclays aggregate. Source: Barclays Research, Markit, Haver
fc
-4 -5
Global trade held up by China; euro area a sustained drag Global trade volumes 150
•
EXPORTS: general signs of a slowdown in all areas
150
Exports
Imports
(2007 = 100)
(2007 = 100)
•
140
140
130
130
120
120
110
110
100
100
90
90
80
China
US
Euro
Japan
80
70
70 Jan 07 = 100, SA
G5
60
60 07
08
09
10
11
12
07
13
Source: Barclays Research, Haver Analytics Last updated: 3 July 2013
8
08
09
10
11
12
13
IMPORTS: ongoing significant weakness in euro area and also some in US and Japan
A loss of momentum from global trade • From the European perspective, Asian exports (particularly to China) drove the recovery… the slowdown had been in export orders from outside the eurozone, but more recently weakening within it • Americas & energy producers were taking up the baton as momentum ebbs from Asia Euro area exports by region
German new industrial orders (ex. special transport)
Rest of W Europe (ex Norway) Americas Asia (inc. Japan, Australia) Emerging Europe (ex CIS) Energy producers (OPEC, CIS, NW)
€bn mthly
40
Rest of world Domestic Euro area
volume index (05= 100) 140 130 120
30
110 100 90
20
80 70 10
60 05
06
07
08
09
10
11
12
13
05
Note: Last updated: 5 Jul 2013. Source: Barclays Research, Markit, Haver
9
06
07
08
09
10
11
12
13
Europe must tackle surging unemployment Unemployment rates (%) 14 13 12 11
Euro area US UK Japan China (urban areas)
14
France
Belgium
13
Germany
Austria
12
NL
27 25 23
11
21
10
10
9
9
17
8
8
15
7
7
13
6
6
11
5
5
9
4
4
7
3
3
5
2
2
3
95 97 99 01 03 05 07 09 11 13
Spain Ireland Greece Portugal Italy
19
95 97 99 01 03 05 07 09 11 13
95 97 99 01 03 05 07 09 11 13
Source: Barclays Research, Haver Last updated: 02 July 2013
• Unemployment has begun to fall more sharply in the US, while it has stabilised in Germany and surges in much of the remainder of the euro area
10
Investment trends: the world watches China Gross fixed capital investment in the G20 GFCF $bn 4000 3500 3000 2500
2000
GFCF % 50% GDP
US China (inc HK)
45%
EU 27
40%
Japan
35%
Rest of G20
China EM G20 ex China G20 US-EU-Japan
30%
1500 1000
25%
500
20%
0
15%
70 73 76 79 82 85 88 91 94 97 00 03 06 09 12
Note: Updated 29 May, 2013. Source: OECD, national statistics, Barclays Research
11
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Marked differences in corporate sector health Non-financial corporate sector: net fixed investment, and net saving, ratios to net value added US US NFCs: Net investment (FCF)/ net VA (%) US NFCs: Net saving/ net value added (%)
10 9
8
Germany
UK
Euro area
GER: NFCs: Net fixed capital formation/ net value added (%)
12
GER: NFCs: Net saving/ net value added (%)
10 15
8
10
7
6
8
6
10
6
5
4
4
4
5
2
2
3
0
2
-2
1
-4
0
-6 60 65 70 75 80 85 90 95 00 05 10
0
-5 99
01
03
France
05
07
09
11
99
13
10
4
5
-2
-4 13
SP: NFCs: Net fixed capital formation/ net value added (%)
25
12 10
15
8
JP NFCs: Net saving/ net value added (%)
6
5
-4
4
0
-10 -15
FR NFCs: Net fixed capital formation/ net value added (%) -20 78 81 84 87 90 93 96 99 02 05 08 11
JP NFCs: Net fixed capital formation/ net value added (%)
14
20
10
-5
11
Japan
SP: NFCs: Net saving/ net value added (%)
0
-12
99
EA NFCs: Net fixed capital formation/ net value added (%) 01 03 05 07 09
Spain
0
-8
UK NFCs: Net saving/ net value added (%) UK NFCs: Net fixed capital formation/ net value added (%) 01 03 05 07 09 11
Italy
8
FR NFCs: Net saving/ net value added (%)
EA NFCs: Net saving/ net value added (%)
0
99
IT: NFCs: Net saving/ net value added (%) IT: NFCs: Net fixed capital formation/ net value added (%) 01 03 05 07 09 11 13
-5
2
-10
0
-15
-2
-20
99
Source: Barclays Research; Haver Analytics (updated: 2 July 2013)
12
01
03
05
07
09
11
13
-4 80
84
88
92
96
00
04
08
12
Reduction in euro area tail risks, but not entirely eliminated • Four sources of risk in southern Europe: • PUBLIC SOLVENCY • A determined effort by governments, but a very long way to go ► Conclusion: 2013 another critical year for fiscal adjustment; fiscal policy to continue to be a major drag on domestic demand • PRIVATE SOLVENCY • Sharply rising bad debts in countries with excessively leveraged real estate • Major bank recapitalisation and restructuring ► Conclusion: Banks have come a long way to raise capital ratios and to write down bad debts and problems now increasingly localised, but still major in Spain, perhaps Italy also • EURO MEMBERSHIP RISK • Substantial adjustment in current account deficits, mainly through demand • However, exports are improving in Spain, Portugal and Ireland, & unit labour costs reduced ► Conclusion: Substantial adjustment has happened more on demand; extent to which prices adjust down depends on flexibility and ongoing structural reforms • POLITICAL SUSTAINABILITY • So far electorates have been supportive of conservative policies • However, unemployment is advancing rapidly in southern Europe ► Conclusion: Warrants close ongoing attention, and depends on pro-growth environment
13
Challenges for the euro area (and elsewhere) 2013 % GDP (unless otherwise stated)
US
Japan
UK
Can.
Euro
Belg. France Germ. Greece Ire.
Italy
NL
Port. Spain
1 Government gross debt (2013)
108
245
94
87
95
100
93
80
179
122
131
74
122
92
2 Government gross debt (2018 est.)
107
243
98
78
90
93
88
69
144
106
123
75
114
111
89
143
86
36
74
84
87
56
176
106
106
36
115
79
-6.5 -10.6 -5.7
-3.2
-2.8
-2.7
-3.7
0.0
-3.9
-7.4
-3.1
-3.6
-6.0
-6.2
7.2
14.3
7.1
2.8
2.8
2.7
4.1
0.0
7.1
6.4
2.7
2.6
6.5
6.0
10.9
15.9
8.9
5.9
4.2
8.4
5.3
1.9
7.2
8.5
1.9
6.4
8.4
7.1
7 Households’ gross debt
82
66
95
91
66
55
57
58
67
108
45
128
92
80
8 Non-fin. corporates’ gross debt3
77
94
107
49
100
182
107
61
69
200
82
97
161
133
-2.6
0.7
-4.1
-3.3
2.6
-1.2
-2.5
7.1
-1.1
4.6
1.3
12.3
-0.8
1.3
-28
66
-35
-16
-13
63
-16
40
-119
-96
-22
51
-119
-94
11 Real GDP growth, 2001-12 % ar
1.7
0.8
1.4
2.0
0.9
1.3
1.0
1.1
0.2
2.2
0.0
1.1
0.0
1.4
12 Real GDP growth, 2013-18 % ar
3.2
1.2
2.0
2.4
1.5
1.4
1.6
1.3
2.8
2.6
1.1
1.7
1.5
1.3
13 Population growth 2013-18 % ar
0.9
-0.3
0.8
0.9
0.1
0.8
0.5
-0.2
-0.1
0.8
0.2
0.2
0.1
-0.2
AA(neg) A+ (neg)
AAA (neg)
AAA
AA+ (neg)
AA (neg)
AAA
B-
BBB+
AA+
AAA
AAA
AA
AAA
B-
BBB+
Aa3
Aa1
Aaa
Aa1 (neg)
Aa3 (neg)
AA+ (neg) AAA (neg) Aa1 (neg)
Aaa (neg)
C
Ba1 (neg)
BBB+ (neg) BBB+ (neg) Baa2 (neg)
AAA (neg) AAA (neg) Aaa (neg)
GOVERNMENT BALANCES
3 Government net debt (2013) 4 General government balance* 5 Required fiscal adjustment
1
6 Req'd fisc.adj't. (inc. age costs)2 PRIVATE SECTOR BALANCES
EXTERNAL BALANCES
9 Current account* 10 Net external assets POTENTIAL GROWTH
CREDIT RATINGS
14 S&P 15 Fitch 16 Moody's
AA+ AAA (neg) Aaa (neg)
BB BB+ (neg) Ba3 (neg)
BBB(neg) BBB (neg) Baa3 (neg)
Source: BIS; EU Consolidated Banking Data; FDIC; IMF, BIS-IMF-OECD-World Bank Joint External Debt Hub (JEDH); IMF staff estimates; Barclays Research estimates; Standard & Poor's Financial Services; Fitch Ratings; Moody's Investors Service 1 The red/orange/grey shading is applied according to a Barclays Research assessment of riskiness. 2 IMF and OECD estimate of fiscal adjustment needed to achieve a 60% debt/GDP ratio (80% for Japan) by 2030, from 2013 onwards as % GDP 3 IMF estimate, including age-related expenditure costs on budget balance 4 Nonfinancial corporates’ gross debt includes intercompany loans and trade credit, and these can differ significantly across countries.
14
Evidence of asymmetric monetary transmission Eurosystem survey of SMEs Response of those who applied for new/renewed bank loan (ex. overdraft, credit line), past 6 months (%)
15 3
11 12
13
5 6
12 33
13
18
20
16
22
15 24
17
24
20
31
33
43
40
H1 09
H2 12
13 18
19
36 78
H1 09
73
H2 12
France
85
25
36 68
67
H1 09
H2 12
Germany
29
25
H1 09
H2 12
66
57
50
55
H1 09
H2 12
32
H1 09
Greece
H2 12
Ireland
Note: *Refused by the SME because cost too high. Source: Barclays Research, ECB
15
H1 09
H2 12
Italy
Portugal
Spain
Received everything Received part Rejected, or refused*
Euro area deposit and loan flows: Divergent trends Deposit & loan growth at a national level (MFI data) % y/ y
France
Germany
Greece
Ireland
Italy
NL
Portugal
Deposits - larger countries
Spain
Cyprus
Euro area
-8.2 -11.2 -12.0 -11.1 -9.8 -8.5 -8.0 -6.9 -6.5 -5.6 -5.1 -4.6
-0.8 -2.1 -0.4 0.6 -0.5 0.4 -1.0 -3.1 -5.8 -9.8 -16.7 -19.1
1.5 1.1 0.4 0.4 0.4 1.1 1.2 1.2 1.3 1.9 2.0 2.2
-4.9 -5.6 -5.8 -5.8 -6.6 -7.2 -7.6 -7.9 -8.0 -8.2 -8.9 -9.6
7.3 6.4 5.0 5.4 4.0 4.1 4.6 5.7 4.0 2.9 1.7 -2.2
-0.4 -0.2 -0.5 -1.2 -1.5 -1.5 -1.3 -1.5 -1.4 -1.3 -1.9 -2.1
-3.4 -3.4 -3.4 -3.6 -3.5 -3.5 -3.7 -3.8 -3.9 -3.9 -4.1 -4.0
2.7 2.5 2.3 2.3 1.9 1.5 1.7 1.3 0.9 0.4 -0.9 -1.4
1.1 1.0 0.9 0.8 0.8 0.8 0.7 0.4 0.4 0.3 0.3 0.3
1.1 Deposit growth (excluding from other MFIs and of central government) Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13
6.8 5.8 4.4 3.2 2.1 2.2 3.8 1.3 1.1 2.2 3.3 3.8
3.8 4.2 3.7 2.9 3.2 2.7 1.5 1.9 1.7 1.7 1.3 0.9
-20.7 -18.5 -19.3 -15.7 -12.3 -10.3 -6.6 -3.9 0.4 0.6 -0.9 5.3
-2.4 -1.1 -0.1 0.3 0.7 0.6 0.6 1.6 1.4 7.2 5.5 5.3
2.9 3.0 3.4 5.1 3.0 6.0 8.3 6.1 5.5 8.4 8.1 8.9
4.3 4.9 4.7 4.8 5.0 6.4 4.1 6.8 6.7 6.0 5.1 4.4
-5.6 -6.3 -7.0 -7.5 -9.3 -8.8 -9.3 -10.2 -10.2 -8.3 -8.5 -7.0
â‚Źbn, excluding central government and other MFIs 3,200 2,800
2,400 2,000 1,600
1,200 800
06
1.2 Loans to non-financial corporations (adjusted for sales and securitisations, except for Italy) Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13
2.3 1.8 1.9 0.9 0.2 0.9 1.3 0.8 0.9 1.4 1.1 1.2
1.3 1.7 1.7 1.6 1.1 1.2 1.1 0.6 0.5 0.5 0.3 0.0
-5.3 -6.2 -5.7 -6.3 -6.0 -6.0 -6.2 -5.3 -4.8 -2.9 -3.3 -3.8
-3.0 -3.2 -2.8 -3.9 -3.9 -4.2 -3.8 -3.8 -4.1 -4.5 -5.3 -5.6
-1.6 -1.1 -2.1 -3.5 -3.2 -3.8 -2.5 -3.2 -2.9 -3.0 -4.0 -4.1
3.1 5.4 5.1 3.0 3.3 3.9 3.3 4.9 5.1 5.2 3.4 3.3
-5.6 -5.9 -6.3 -6.7 -7.1 -7.1 -5.1 -4.2 -4.3 -3.6 -3.6 -3.3
Germany France Austria/ Benelux Spain Italy
07
08
09
10
11
12
13
Deposits - periphery â‚Źbn, excluding central government and other MFIs 260 240
220 200
1.3 Loans to households (adjusted for sales and securitisations, except for Italy) Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13
4.4 4.1 3.9 3.7 3.5 3.4 3.2 2.7 2.7 2.6 2.7 2.8
1.1 1.2 1.2 1.2 1.3 1.4 1.3 1.3 1.3 1.2 1.2 1.2
-5.0 -5.2 -5.5 -4.9 -4.8 -4.5 -4.2 -4.1 -4.3 -4.3 -4.2 -4.0
-3.8 -3.8 -3.9 -3.8 -3.9 -3.9 -4.1 -4.3 -4.6 -4.5 -4.5 -4.8
0.9 0.1 -0.2 -0.6 -0.7 -1.0 -1.1 -1.2 -1.2 -1.3 -1.3 -1.4
2.3 2.2 2.0 1.9 1.7 1.5 1.5 1.4 1.3 1.3 1.2 0.9
-3.5 -3.7 -3.8 -3.9 -4.1 -4.1 -4.2 -4.2 -4.2 -4.2 -4.3 -4.3
so urce: ECB , B arclays Research
16
180
160
Greece Ireland Portugal
140 06 shown 07 are08 09 flow data 10 and11are not12SA NB: Series based on NB: Series shown are based on flow data and are not SA Source: Barclays, ECB
13
Spanish bank loans sour more rapidly ''Doubtful' (ie, non-performing) loans in Spain (bn euros) (a) Outstanding loans & capital (mthly) 2000
(b) 'Doubtful' loans by sector (quarterly)
250 600
transferred to SAREB
1800
1600
Dom. loans outstanding (LHS)
500
Bank capital + general reserves + provisions
400
1400 1200
200
5474
construction/ real estate firms non-construction firms
150
total households
1000
300
100
800 600
200
'Doubtful' loans
400
100
0
0 07
08
09
10
11
12
27
20
200 0
35
50
47 48 50 58
62
14 16 18 18202122 22 22 24 26
82
28
39 30 36
08
09
10
11
12
Source: Bank of Spain, various reports, Barclays Research. Note: *The data for repossessions in the broader economy are estimated and taken from the IMF's country report (July 2011). Last updated: 18 Jun, 2013
17
44 45
9 5 6 8 37 38 3 5 2 24 29 31 31 3029 2828 262626 27 29 30 31 34 2 1 4 4 19 4 4 15 11 6 7 8 9
07
13
10
37 39 44
70 74
108 85 77 101 87
13
Italian banks: also suffering from rising NPLs Non-performing loans in Italy
400
Household (inc. non-profits) €bn (LHS) Construction/ real estate €bn (LHS) Rest of economy €bn (LHS) NPL ratio: Household (% RHS) Ratio: Const./ RE (% RHS) Ratio: Other (% RHS)
150
100
15
350 300 NPLs (EUR bn) Restructured loans Capital & reserves
250
10
200
Substandard loans Overdue loans
150 50
5
100 50 0
0 09
10
11
12
0
13
09
10
11
12
13
Net NPLs as % core capital
173%
174%
129% 57%
68%
75%
95%
93% 24%
PMIIM
ISPIM
UCGIM
UBIIM
MONTE
BPIM
33%
SANTAN BBVASM SABSM POPSM
Source: Barclays Research (including Credit Research (bottom slide)); Haver Analytics Last updated: 2 July, 2013
18
74% 36%
BESPL
BCPPL
Foreign debt holdings stabilise Spanish central gov’t securities by holder
Italian government debt by holder Non-residents ex Eurosystem SMP purchases Domestic bank holdings Other domestic financial institutions 45.0 Other domestic
EURbn
900 800
700
35
43
32
42
600
% of total
500 400 300 200 100 0 Mar-09
Mar-10
Mar-11
Mar-12
40.0 33 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 Mar-13
Source: Barclays Research
19
Non-residents ex Eurosystem SMP purchases Domestic bank holdings 55.0 Other domestic financial institutions Other domestic
EURbn 300 250
45.0
42
200
35.0
43
23
150 100
25 % of total
25.0 15.0
50 0 Mar-09
27
5.0
Mar-10
Mar-11
Mar-12
-5.0 Mar-13
Euro: Holding up â‚Źarea current a/c vs real effective exchange rate
Euro area trade in goods and services (SA)
Current a/ c as % GDP (SA), LHS REER - ULC based (adv. economies, 2005=100,IMF, RHS) REER - CPI based (broad, 2010=100, BIS, RHS)
3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5
29 G+S exports as % GDP
27 75
25
80
23
85 90
21
95 100
19
105
17
110 115 latest est. based on rate on 18 Jun 13 98
01
04
07
10
G+S imports as % GDP
15 Apr 06 Apr 07 Apr 08 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13
120
13
Source: IMF, Haver Analytics, Barclays Research. Last updated: 28 June 2013.
20
S. Europe sees export expansion while suppressing imports Exports of goods and services, % GDP (3m ma, SA)
100
Portugal Italy
45
Ireland NL Germany
Spain France
UK Greece
40 35
80
30
60
25 40
20
20
15
05
06
07
08
09
10
11
12
13
05
06
07
08
09
10
11
12
13
Imports of goods and services, % GDP (3m ma, SA) Ireland NL Germany
90 80
Portugal Italy
50
Spain France
UK Greece
45
70
40
60
35
50
30
40
25
30 05
06
07
08
09
10
11
12
20
13
05 Source: Haver Analytics. Note: Latest update 3 Jul 2013
21
06
07
08
09
10
11
12
13
External imbalance adjustment: S Europe improves • The superior performance of industrial unit labour costs has resulted generally in rising current account surpluses in the “core” countries (with France the main exception) • In the “periphery” current accounts deteriorated rapidly from the start of EMU in 1999 to 2007; they are since narrowing sharply
Current account balances (as % GDP, seasonally adjusted) “Core” 15
“Periphery” 10
Germany
France
Aust.
Belg.
NL
Finland
5
10
0
5
-5 -10
Ireland Italy Spain Portugal Greece
0
-15 -5
-20 -25
-10 91
93
95
97
99
01
03
05
07
09
11
91
13
Source: Haver Analytics; Barclays Research Last updated: 3 Jul 2013
22
93
95
97
99
01
03
05
07
09
11
13
But investment positions still very negative • The divergent trends in current accounts is reflected in major divergence in net international investment positions, with the “core” generally in strong surplus… But the “periphery” is generally in a very negative position (Italy to a much lesser extent)
Net international investment position (% GDP) “Core”
“Periphery”
80
60
60
40
40
20
20
0
0
Ireland (excluding IFSC) Italy Spain Greece Portugal
-20
-20
-40
-40 -60
-60 -80 -100
Germany Austria NL
France Belgium Finland*
-80 -100
-120
-120
91 93 95 97 99 01 03 05 07 09 11 13
91 93 95 97 99 01 03 05 07 09 11 13 Source: Haver Analytics; Barclays Research. Note: *Finland excludes equity portfolio position. Last updated: 3 Jul 2013
23
Competitiveness adjustment in the euro area (1) Unit labour costs in industry: Evolution vs Germany (indexed at Q1 01) “Periphery”
“Core” 160
140
Germany = 100 Finland France Aust. Belg. NL
180 160 140
120
Greece Italy Spain Portugal Ireland Germany = 100
120 100 100
80
80
60
60
91 93 95 97 99 01 03 05 07 09 11 13
91 93 95 97 99 01 03 05 07 09 11 13
Source: Haver Analytics; Barclays Research Last updated: 3 Jul 2013
• The “core” countries have generally kept the evolution of their industrial unit labour costs in line with that of Germany since EMU began
24
Competitiveness adjustment in the euro area (2) • After many years when German compensation has been well below most other countries, it has more recently moved to be the highest – as other countries experience much weaker pressure
Signs of adjustment in wage flexibility
Cumulative changes
Historical perspective
Compensation per employee (% annualised)
Compensation per employee (% y/ y) Germany Spain Greece
10
Italy Ireland
France Portugal
2000-08
08 - 12
5 5.7
5.0 3.6
0
3.0 2.1
2.3
1.1
3.3
2.6 0.8
1.4
0.6
-5
-0.5 -1.6
-10 07
08
09
10
11
12
Ger.
13
Source: Haver Analytics; Barclays Research Last updated: 3 Jul 2013
25
Fra.
Ita.
Spa.
Por.
Ire.
Gre.
EU far from US-style levels of re-distribution Comparing net transfers across EU countries and US states US (average 1996-2005)
EU (2008) 250
140
euro area countries non-euro area countries State per capita GDP, % US average
GNP per capita % euro area average
130
Lux.
200
DK
150 Swe.
Ireland FN
NL Aus
Bel
Ger.
100
Iceland
FR IT UK
Greece
Spain Slov. P o rtugal CZ Ma Est Latvia SK
Cyprus
50
HN
Pol
Cro TK
Lithuania
Connecticut
New Jersey Mass
120 Califronia
110 N Hamp
Colorado
Virginia
Illinois Minnesota
100
Hawaii Wysconsin Missouri
Michigan
90
Indiana
S Dakota Arizona
N Dakota Idaho Alabama
Utah
Montana
Bulg.
S Car.
0 -1
0
1
Alaska
Wyoming
Nevada
80 Rom.
Maryland
NY
2
3
4
5
70 -10
EU net transfers, % country GDP
Arkansas
New Mexico W Virginia Missi-ssippi
-5
0
5
10
15
Federal spending less receipts, % state GDP
Source: Eurostat, nenw.org, BEA, Tax Foundation
26
20
Appendices
27
Euro area outlook: Key forecasts 2012
2013
2014
Calendar year average
% change q/ q
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1E
Q2E
Q3E
Q4E 2011 2012 2013E 2014E
Real GDP
-0.1 -0.2
-0.1
-0.6
-0.2
0.1
0.2
0.3
0.3
0.4
0.4
0.4
...
...
...
...
Real GDP (saar)
-0.2 -0.8
-0.5
-2.3
-0.8
0.5
0.9
1.1
1.2
1.7
1.7
1.6
...
...
...
...
Real GDP (y/ y)
-0.1 -0.5
-0.7
-1.0
-1.1
-0.8
-0.4
0.4
0.9
1.2
1.4
1.6
1.5
-0.5
-0.5
1.3
Private consumption
-0.2 -0.5
-0.2
-0.6
0.1
0.0
0.0
0.1
0.2
0.2
0.3
0.3
0.2
-1.3
-0.6
0.6
Public consumption
0.0
-0.3
-0.2
0.0
-0.1
0.1
0.0
0.0
0.0
0.1
0.1
0.1
-0.1
-0.4
-0.2
0.1
Investment
-1.4 -1.7
-0.9
-1.4
-1.6
-0.2
0.5
0.5
0.7
0.7
0.8
0.7
1.5
-4.2
-3.3
2.3
- Residential construction
-0.8 -1.6
-0.3
-1.4
-1.1
-0.6
0.0
0.3
0.3
0.3
0.5
0.5
0.5
-3.7
-3.1
1.0
- Non-residential construction
-2.3 -2.2
-0.9
-1.4
-1.6
0.0
0.4
0.4
0.3
0.4
0.4
0.4
-1.3
-5.9
-3.4
1.5
- Non-construction investment
-1.2 -1.6
-1.3
-1.4
-1.7
0.0
0.7
0.6
1.1
1.2
1.1
1.0
3.8
-3.4
-3.3
3.7
Inventories contribution (pp)
0.0
-0.1
-0.1
-0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.3
-0.5
-0.2
0.0
Final dom. demand cont. (pp)
-0.4 -0.7
-0.3
-0.6
-0.3
0.0
0.1
0.1
0.2
0.3
0.3
0.3
0.4
-1.7
-1.0
0.9
Net exports contribution (pp)
0.3
0.6
0.3
0.1
0.1
0.2
0.1
0.1
0.1
0.1
0.1
0.1
1.0
1.6
0.6
0.4
Industrial output (ex construct.) -0.5 -0.5 Employment (q/ q) -0.2 -0.1 Unemployment rate % 10.9 11.3
0.0
-2.1
0.2
0.8
0.0
0.5
0.5
0.1
0.1
0.1
3.2
-2.3
-0.8
1.2
-0.1
-0.3
-0.5
-0.3
-0.1
0.0
0.1
0.1
0.2
0.2
0.3
-0.7
-1.0
0.2
11.5
11.8
12.3
12.4
12.5
12.6
12.6
12.7
12.6
12.7
10.2
11.4
12.4
12.7
CPI inflation (y/ y)
2.7
2.5
2.5
2.3
1.9
1.4
1.4
1.4
1.3
1.6
1.4
1.3
2.7
2.5
1.5
1.4
Core CPI (ex food/ energy) y/ y
1.5
1.6
1.6
1.5
1.4
1.1
1.2
1.1
1.2
1.2
1.0
0.9
1.4
1.5
1.2
1.1
Current account % GDP
0.9
1.2
1.5
1.5
2.3
2.5
2.6
2.7
2.7
2.8
2.7
2.8
0.1
1.3
2.6
2.8
Government balance % GDP
…
…
…
…
…
…
…
…
…
…
…
…
-4.2
-3.7
-2.8
-2.2
1.00
1.00
0.75
0.50
0.50
0.50
0.50
0.50
0.50
0.50
1.00
1.00
0.50
0.50
Refi rate (period end %)
1.00 1.00
Note: Data show percent seasonally adjusted q/q rates of change (unless stated otherwise). Source: Barclays Research. Last updated 28 June 2013
28
Euro area outlook: Country forecasts Real GDP % y/ y
HICP % y/ y
2010
2011
2012
2013 (F)
2014 (F)
2010
2011
2012
2013 (F)
2014 (F)
Euro area
1.9
1.5
-0.5
-0.5
1.3
1.6
2.7
2.5
1.5
1.4
Germany
4.0
3.1
0.9
0.5
2.0
1.2
2.5
2.1
1.7
1.7
France
1.6
2.0
0.0
-0.1
1.1
1.7
2.3
2.2
1.1
1.2
It aly
1.7
0.5
-2.4
-1.7
0.8
1.6
2.9
3.3
1.6
1.4
Spain
-0.3
0.4
-1.4
-1.7
0.6
2.0
3.1
2.4
1.8
1.1
Net herlands
1.6
1.1
-1.3
-1.0
0.9
0.9
2.5
2.8
2.8
2.0
Belgium
2.4
1.9
-0.3
0.0
0.9
2.3
3.4
2.6
1.1
1.2
Aust ria
2.2
2.7
0.8
0.5
1.8
1.7
3.6
2.6
2.3
2.0
Greece
-4.4
-5.2
-6.4
-4.3
0.2
4.7
3.1
1.0
-0.3
-0.4
Port ugal
1.9
-1.6
-3.2
-2.6
0.3
1.4
3.6
2.8
0.7
0.1
Finland
3.3 0.0
2.8 0.0
-0.2 0.0
-0.2 0.0
1.4 0.0
1.7 0.0
3.3 0.0
3.2 0.0
2.5 0.0
2.1 0.0
Ireland
Unemployment rat es %
Current account (% GDP)
2010
2011
2012
2013 (F)
2014 (F)
2010
2011
2012
2013 (F)
2014 (F)
Euro area
10.1
10.2
11.4
12.4
12.7
0.0
0.1
1.3
2.6
2.8
Germany
7.1
6.0
5.5
5.4
5.6
6.1
6.2
7.1
7.1
7.1
France
9.7
9.6
10.3
11.2
11.4
-1.6
-1.9
-2.3
-2.5
-2.3
It aly
8.4
8.4
10.7
12.1
13.2
-3.6
-3.1
-0.6
1.3
1.8
Spain
20.1
21.7
25.0
26.9
27.0
-4.5
-3.8
-1.1
1.3
2.0
Net herlands
4.5
4.4
5.3
6.9
8.1
7.7
10.1
10.1
11.9
12.5
Belgium
8.2
7.2
7.6
8.6
9.3
1.8
-1.2
-1.4
-1.2
-0.9
Aust ria
4.4
4.2
4.4
4.9
4.9
3.4
1.3
1.8
1.6
2.1
Greece
12.6
17.7
24.3
28.8
29.8
-9.8
-9.4
-3.1
-1.1
0.4
Port ugal
12.0
12.9
15.9
18.7
18.8
-10.6
-7.0
-1.5
-0.7
-0.5
Finland
8.4
7.8
7.8
8.3
8.6
1.5
-1.5
-1.8
-0.5
-0.6
Ireland
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Source: Haver, Barclays Research. Last update: 28 June 2013
29
Euro area outlook: Country forecasts General government balance ( % GDP)
Austria Belgium Cyprus Estonia* Finland* France Germany Greece Ireland Italy Luxembourg* Malta* Netherlands Portugal Slovakia* Slovenia* Spain Total euro US UK Japan Hungary Poland Turkey Estonia Latvia Lithuania
2008
2009
2010
2011
-0.9 -1.0 0.9 -2.9 4.4 -3.3 -0.1 -9.8 -7.4 -2.7 3.2 -4.6 0.5 -3.7 -2.1 -1.9 -4.5 -2.1 -6.6 -5.1 -2.2 -3.7 -3.7 -2.2 -2.9 -4.2 -3.3
-4.1 -5.6 -6.1 -2.0 -2.5 -7.5 -3.1 -15.6 -13.9 -5.5 -0.8 -3.7 -5.6 -10.2 -8.0 -6.2 -11.2 -6.4 -11.6 -11.5 -8.7 -4.6 -7.3 -6.7 -2.0 -9.7 -9.5
-4.5 -3.8 -5.3 0.2 -2.5 -7.1 -4.1 -10.7 -30.8 -4.5 -0.9 -3.6 -5.1 -9.8 -7.7 -5.9 -9.7 -6.2 -10.7 -10.2 -8.1 -4.2 -7.8 -3.9 0.2 -8.3 -7.0
-2.5 -3.7 -6.3 1.2 -0.8 -5.3 -0.8 -9.4 -13.4 -3.7 -0.2 -2.8 -4.5 -4.4 -5.1 -6.4 -9.4 -4.2 -9.9 -7.8 -8.9 3.6 -5.6 -1.0 0.3 -4.5 -5.3
Gross government debt ratio (% GDP)
2012 E 2013 F 2014 F 2015 F -2.5 -3.9 -6.3 -0.2 -1.7 -4.8 0.2 -6.2 -7.6 -3.0 -1.9 -3.0 -4.1 -6.4 -4.9 -3.2 -10.6 -3.6 -9.4 -6.4 -8.8 -2.9 -2.9 -2.0 -2.3 -2.9 -3.0
-2.4 -2.7 -4.5 0.4 -2.0 -3.7 0.0 -4.1 -7.4 -3.1 -1.0 -2.9 -3.6 -6.0 -3.2 -6.9 -6.2 -2.8 -7.7 -6.0 -8.6 -3.0 -2.4 -3.0 -0.7 -3.2 -3.4
-1.8 -2.1 -3.5 0.4 -1.3 -3.2 0.3 -3.1 -4.5 -2.3 -1.3 -2.9 -2.9 -4.4 -3.0 -4.3 -5.3 -2.2 -6.8 -5.8 -7.5 -3.0 -1.9 -3.5
-1.3 -0.7 -2.5 0.3 -0.7 -2.4 0.3 -2.3 -2.3 -2.0 -2.5 -2.8 -2.1 -2.9 -2.9 -4.1 -3.8 -1.5 -6.5 -4.9 -6.9 -3.0 -1.4 -3.5
Note: *Forecasts by European Commission. Last update: 28 June 2013. Source: Haver, Barclays Research
30
2008
2009
2010
2011
64 89 49 5 34 68 67 113 45 106 14 61 59 72 28 22 40 70.2 73 52 174 73 47 40 5 20 16
69 96 59 7 44 79 75 130 65 116 15 66 61 84 36 35 54 80 90 68 194 80 51 45 7 37 29
72 96 61 7 49 82 83 148 92 119 19 67 63 94 41 39 62 85 98 79 200 81 55 42 7 45 38
73 98 71 6 49 86 81 171 106 121 18 70 66 108 43 47 69 87 103 85 213 77 57 40 6 45 38
2012 E 2013 F 2014 F 2015 F 73 100 86 8 53 89 82 162 118 127 21 73 71 124 52 53 84 93 107 92 217 72 56 40 6 45 39
73 101 104 10 57 91 80 173 123 132 23 73 76 129 55 69 91 95 110 94 222 71 55 40 5 47 39
72 101 110 9 58 92 78 169 122 133 26 73 77 129 56 72 96 95 112 98 222 69 53 39
71 98 105 9 59 92 75 162 119 132 29 73 77 129 57 74 98 94 113 99 226 67 51 38
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Important Disclosures (continued) This publication has been prepared by the Corporate and Investment Banking division of Barclays Bank PLC and/or one or more of its affiliates (collectively and each individually, "Barclays"). It has been issued by one or more Barclays legal entities within its Corporate and Investment Banking division as provided below. It is provided to our clients for information purposes only, and Barclays makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to any data included in this publication. Barclays will not treat unauthorized recipients of this report as its clients. Prices shown are indicative and Barclays is not offering to buy or sell or soliciting offers to buy or sell any financial instrument. 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