Quarterly Report on the Spanish Economic

Situation Q1 2015

Crculo de Empresarios Madrid, April 2015

2

GLOBAL SETTING

USA 3.1%

Mexico 3%

Brazil -1%

Spain 2.5%

UK 2.7%

France 1.2%

Italy 0.5%

South Africa

2%

India 7.5%

China 6.8%

Russia -3.8%

Japan 1%

ASEAN-5 5.2%

Australia 2.8%

Germany 1.6%

Eurozone 1.5%

Predictions 2015

3 aASEAN-5: Philippines, Indonesia, Malaysia, Thailand and Vietnam Source: World Economic Outlook, IMF - April 2015

Moderate and unequal acceleration

Evolution of per capita income

4 Source: IMF - April 2015

x 3,2

x 5,6

x3,4x 6,7

x10x25

0

10000

20000

30000

40000

50000

60000

1984 1989 1994 1999 2004 2009 2014

$

USA

Germany

Japan

Spain

Brazil

China

Last 30 years

Prices of raw materials

5

Source: IMF, April 2015

8090

100110120130140150160170180190200210220230240250

2005

M3

2006

M3

2007

M3

2008

M3

2009

M3

2010

M3

2011

M3

2012

M3

2013

M3

2014

M3

2015

M3

Index of raw material prices2005 = 100

TOTAL

Non-energy raw materialsEnergy

Price of gold

6 Source: Bloomberg, April 2015

Depreciation of the euro

7 Source: Bank of Spain, 2015

Depreciation of the euro, with the lowest exchange rate since the spring of 2003. Greater competitiveness of European exports outside the eurozone and more expensive imports.

1,35

1,45

1,32 1,31

1,38

1,07

1,001,051,101,151,201,251,301,351,401,451,50

2010 2011 2012 2013 2014 2015

US dollars per euro

9,209,47

8,328,10

8,62

6,65

6,507,007,508,008,509,009,50

10,00

2010 2011 2012 2013 2014 2015

Yuan per euro

0,880,89

0,82

0,85 0,82

0,72

0,7

0,8

0,9

2010 2011 2012 2013 2014 2015

Pounds sterling per euro

125,32120,13

107,81

130,21

141,69

127,68

100,00105,00110,00115,00120,00125,00130,00135,00140,00145,00

2010 2011 2012 2013 2014 2015

Japanese yen per euro

Stock market indices

8

Source: Inverco, 2015

Evolution of stock markets%

2000 2002 2004 2006 2007 2008 2009 2010 2011 2012 2013 2014

Dax 30 (Francfurt) -7.5 -43.9 7.3 22.0 22.3 -40.4 23.9 16.1 -14.7 29.1 25.5 2.7

Ibex 35 (Madrid) -21.7 -28.1 17.4 32.2 7.3 -39.4 29.8 -17.4 -13.1 -4.7 21.4 3.7

CAC 40 (Paris) -0.5 -33.7 7.6 17.5 1.3 -42.7 22.3 -6,0 -17.0 15.2 18,0 -0.5

Eurostoxx 50 (Euro) -2.7 -36.6 6.9 15.1 6.8 -44.3 22.2 -6.8 -17.1 13.8 17.9 1.2

FTSE 100 (London) -10.2 -24.6 7.7 10.7 3.8 -32.0 27.6 9.0 -5.6 5.8 14.4 -2.7

S&P (USA) -10.2 -23.3 9.3 13.6 3.5 -39.3 23.5 13.1 -0.3 11.8 31.5 11.4

Dow Jones (USA) -6.2 -16.8 3.7 16.3 6.4 -34.7 18.8 11,0 5.5 7.3 26.5 7.5

Nikkei 225 (Japan) -27.2 -18.6 7.1 6.9 -11.1 -42.1 19.0 -3.0 -17.3 22.9 56.7 7.1

Risks

9

Source: Inhouse and BBVA Research

10

SPAIN

Development of GDP

11

Source: National Statistical Institute (INE), April 2015

0.9

-0.8-1.6

2.6

-2,5

0.5

-4.3

4.1

-5

-4

-3

-2

-1

0

1

2

3

4

5

2015

Q1

2014

Q3

2014

Q1

2013

Q3

2013

Q1

2012

Q3

2012

Q1

2011

Q3

2011

Q1

2010

Q3

2010

Q1

2009

Q3

2009

Q1

2008

Q3

2008

Q1

2007

Q3

2007

Q1

Quarterly Annual%

Improved outlook for growth

12

The Bank of Spain predicts a rise in GDP of 2.8% in 2015 and of 2.7% in 2016, supported by an increase in investment (5.9 and 6.7%, respectively). In addition, the Bank foresees a growth in private consumption of 3.3% in 2015.

These predictions are in line with those of FUNCAS, of 2.6% (2015) and 2.6% (2016), and surpass those of the European Commission (2.3% in 2015 and 2.5% in 2016), the IMF (2.5% in 2015 and 2% in 2016), and the OECD (1,7% and 1.9%).

2.82.7

-6

-4

-2

0

2

4

6

8

2013 2014 2015* 2016*

GFCF

Exports

GDP

* ForecastsSource: Bank of Spain, March 2015

Prices: CPI and underlying CPI

13

Source: INE, April 2015

The annual general Consumer Price Index rose from -1.07% to -0.66%. For its part, the underlying CPI (not counting energy and fresh foods) went from 0.15% to 0.20%.

CPI-0.7

Underlying0.2%

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

5,0

6,0

2015

M03

2014

M03

2013

M03

2012

M03

2011

M03

2010

M03

2009

M03

2008

M03

2007

M03

Annual development of general CPI and underlying CPI

Interest rates

14

The risk premium is around 100 basis points.

Source: Bank of Spain, April 2015

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

Return on 10-year bonds in Spain and Germany

Spain

Germany

Risk premium

Situation of public accounts (I)

15

Reform Public Administrations

Necessary fiscal reform.

New measures against fraud and the black economy.

Source: IMF, April 2015

40.5 40.9

36.7

34.836.2 36.0

37.0 37.5 37.838.3 38.9

41.1

45.8 45.6 45.447.3

44.3 43.6

30

32

34

36

38

40

42

44

46

48

50

2006 2007 2008 2009 2010 2011 2012 2013 2014

Structure of income and public spending as a % of GDP

Income Spending

From a surplus of 2% in 2006 to a deficit of 11% in 2009. 5.8% in 2014, according to Eurostat, second highest in the Eurozone

after Cyprus.

The State deficit until March rose to 9,854 million euros, some 3% more than in the same period of 2014.

The public debt rose from 36.3% in 2007 to 97.7% in 2014.

16

Situation of public accounts (II)

-12

-10

-8

-6

-4

-2

0

2

4

2006 2007 2008 2009 2010 2011 2012 2013 2014

Public deficit, 2006-2014% GDP

Germany France

UK Spain

Source: IMF, April 2015

30

40

50

60

70

80

90

100

110

2006 2007 2008 2009 2010 2011 2012 2013 2014

Public debt, 2006-2014% GDP

FranceGermanySpainUK

Source: IMF, April 2015

The private sector reduced its debt by 477,000 million euros since the end of 2008.

Deleveraging of the private sector

17

Source: Inhouse based on data from the Bank of Spain, 2015

115,5

89,1

83,4

70,7

60

70

80

90

100

110

120

2007 2008 2009 2010 2011 2012 2013 2014

% G

DP

Financing of non-financial companies and families

Companies

Families

18

Labor market (I)

Unemployment dropped in the first quarter of 2015 by 13,100 persons, the largest drop in a first quarter since 2005.

23.826.9

9.6

Unemployment rate% of total labor force

Source: EAPS 1Q2015 (INE)

19

Labor market (II)

20.1

21.6

25.0

26.1

24.4

22.2

20.520

21

22

23

24

25

26

27

2010 2011 2012 2013 2014 2015* 2016*

Forecasts for the unemployment rate% of active population

* ForecastsSource: Bank of Spain, March 2015

90

95

100

105

110

T1-2

007

T2-2

007

T3-2

007

T4-2

007

T1-2

008

T2-2

008

T3-2

008

T4-2

008

T1-2

009

T2-2

009

T3-2

009

T4-2

009

T1-2

010

T2-2

010

T3-2

010

T4-2

010

T1-2

011

T2-2

011

T3-2

011

T4-2

011

T1-2

012

T2-2

012

T3-2

012

T4-2

012

T1-2

013

T2-2

013

T3-2

013

T4-2

013

T1-2

014

T2-2

014

T3-2

014

T4-2

014

Evolucin costes laborales unitarios, 2007-20142010=100

Alemania

Francia

RU

Espaa

Productivity

20

Starting in 2011, Spain will increase its productivity by reducing labor costs.

Germany

France

UK

Spain

Development of labor costs, 2007-2014

Source: OECD, 2015

21

Family net financial wealth (financial assets less debt) remains at 1.1 billion euros.

Situation of household wealth (I)

Source: Inverco and inhouse, 2015

-0.8

1.1

0.8

0.1 0.7

1.0

1.1

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

Net financial wealth of familiesBillion of euros

Deposits and cash

Other financial assets*

Financial liabilities

NET FINANCIAL WEALTH

*Other financial assets: pension funds, insurance, fixed income...

22

The net wealth of families (financial wealth plus real estate wealth without debt) doubled between 1999-2013, from 2.7 to 5.3 billion euros.

Situation of household wealth (II)

Source: Bank of Spain, Inverco and inhouse, 2015

-0.8

2.0

4.22.7

7.2

5.3

1.1

-1,0

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Net wealth of familiesBillions of euros

Real estate wealth

Financial assets

Financial liabilities

NET WEALTH

Internationalization (I)

23

-10,0

0,80,1 0,4

-12

-10

-8

-6

-4

-2

0

2

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015*

Historic change in the current account balance in 5 years. After 26 years, the Spanish economy ended 2013 and 2014

with a surplus in its current account.

Evolution of Spanish current account, 2000-2015 % GDP

Estimated* Source: IMF, 2015

24

Advance in the contribution of exports to the GDP: from 22.7 % in 2009 to 32% in 2014

Internationalization (II)

-100

102030405060708090

Po

rtu

ga

l

ESP

A

A

Ho

lan

da

EEU

U*

Ale

ma

nia

Fra

nc

ia

Co

rea

*

RU

Ch

ina

*

Ch

ile

p %

X/PIB 2014 Variacin 2009-2014

* 2013

Source: OECD, 2015

Exports as part of GDP

50

100

150

200

250

300

350

1999

2001

2003

2005

2007

2009

2011

2013

Exports. Main European exporters vs. Spain(base 100 =1999)

World

Spain

Netherlands

Germany

Italy

UK

France

Source: WTO (2015) and in-house

Portu

gal

Spa

in

Net

herla

nds

USA

*

Ger

ma

ny

Fra

nce

Kore

a*

UK

Chi

na*

Chi

le

X/GDP 2014

Variation, 2009-2014

New markets and important growth of exports to Asia and the Americas.

Diversified and added value exports

25

Internationalization (III) Diversification both geographically and by product is the key to relaunching the Spanish exports.

-20,0

-10,0

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

EU28 America Asia Africa Rest of Europe

Rest of world

Geographical diversification%

% of total 2014 Variation 2014/2013

Source: Datacomex (2015)

-15

-10

-5

0

5

10

15

20

25

30

Diversification by products%

% of total Variation

Source: Datacomex (2015)

Leadership in tourism 2014 was a record year

26

Internationalization (IV)

In the first quarter of 2015 there were 10.6 million arrivals of non-residents, an increase of 5.3% over the same period of 2014, with more Asian and British citizens. In the first quarter of 2015 their spending increased by 7% with regard to the same period of 2014.

Source: WTO, 2015

27

Spanish and foreign investment

0,05,0

10,015,020,025,0

Inversores extranjeros en Espaa% del total en 2014 y variacin 2014/2013

-12-41,8 -61,4

-11,682,8

21,7

56,41.030112,6

108,2

-71,2

0

10.000

20.000

30.000

Inversin productiva (sin ETVE)

+9.8% interannual

Spanish investment overseas, 2000-2014 Millions of euros

Source: : Ministry of the Economy, Registry of Overseas Investment (2015)

Source: Ministry of the Economy, Registry of Overseas Investment (2015)

Productive investment

Foreign investors in Spain % of total in 2014 and variation 2014/2013

28

Spains position in international rankings

www.circulodeempresarios.org

Quarterly Reporton the Spanish Economic Situation Q1 2015Nmero de diapositiva 2Nmero de diapositiva 3Nmero de diapositiva 4Nmero de diapositiva 5Nmero de diapositiva 6Nmero de diapositiva 7Nmero de diapositiva 8Nmero de diapositiva 9Nmero de diapositiva 10Nmero de diapositiva 11Nmero de diapositiva 12Nmero de diapositiva 13Nmero de diapositiva 14Nmero de diapositiva 15Nmero de diapositiva 16Deleveraging of the private sectorNmero de diapositiva 18Nmero de diapositiva 19Nmero de diapositiva 20Situation of household wealth (I)Nmero de diapositiva 22Nmero de diapositiva 23Nmero de diapositiva 24Nmero de diapositiva 25Nmero de diapositiva 26Spanish and foreign investmentSpains position in international rankingsNmero de diapositiva 29