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Spain’s Equity Story Strengths and forecasts of the Spanish economy

Spain’s Equity Story Strengths and forecasts of the Spanish economy. Madrid, July 2011. Situation. Spain’s GDP Year-on-year variation rate (%). (p) Projection Source: CEC based on INE. Spain, well positioned to face the new era. Spain has tripled its weight in EU15. Spain 3,7%. Spain

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Spain’s Equity Story Strengths and forecasts of the Spanish economy

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  1. 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 (%) (p) Projection Source: CEC based on INE

  4. Spain, well positioned to face the new era

  5. Spain has tripled its weight in EU15 Spain 3,7% Spain 9,4% Share of Nominal GDP 2010 Share of Nominal GDP 1960 France Rest of EU15 Rest of EU15 France 18,7% 17,5% 59,2% 65,4% 12,2% 13,9% Italy Italy 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. In the last years we have won international respect… even excluding the building industry GDP 1994-2014 (Based on Euroconstants; 1993=100) Since 1994, Spain’s GDP has increased over 60%, 2.3 times higher than in European core countries… 160 SPAIN … this sets Spain as 4th economy regarding per capita income and 5th in size… 140 SPAIN excl. building industry 120 … with the highest investment rate excl. housing (infrastructure & capital goods). European Core* 100 1993 1995 1997 1999 2001 2003 2005 2007 2009 7 *European core countries: France, Germany, Italy, Austria and The Netherlands Source: IMF forecasts 2011-2015

  8. Fourth largest GDP per capita among the foremost EU15 countries % GDP per Capita 2010 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 Share of World Export Market 2000-2009 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 Spanish Service Exports by Industry (% total, 2000) Spanish Service Exports by Industry (% total, 2010) To business To business Tourism Tourism Otherservices Otherservices • 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 2003-09. One of the 5 largest telecommunications companies is Spanish.

  19. Maintaining its leadership in TOURISM, Tourist Industry Contribution to GDP (% in 2006) Tourist Industry Revenues in 2009 (billion euros) 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 2000-07) 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.

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

  26. 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 2010 and current collective bargaining. Labourmarketflexibility

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

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

  29. 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 2010 and current collective bargaining. Labourmarketflexibility • Restructuring, recapitalisation and a change in savings bank governance underway. Banks solvency

  30. 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, july 2011 Source: Bank of Spain and INE, sep 2010 30

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

  32. Reforms with an impact in the short term: pension system and public finance solvency Market concerns Reform Pensionsystemsustainability • Directed toward reducing mid-term pension spending (-2/4 pp GDP) Publicfinancesustainability • 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 Budget Balance (% 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 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 potentialtalent(it is placed 11th in the world ranking according to “Mapping Global Talent”) • Theimbalancesaccumulated in the past are undergoing anadvanced adjustment. • The reforms underway are directed atenhancing 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. Spain’s Equity Story Strengths and forecasts of the Spanish economy Madrid, July 2011

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