In the second quarter of 2012, the global economy was once more hit by the resurgence of financial turmoil, with a significant impact on economic activity. Global GDP pace of growth slowed compared with the average annual growth recorded in 2011. Even so, economic performance continued to vary widely by region.
This worsening of the global economy is mainly due to events in Europe. First, doubts continue regarding the effectiveness of the fiscal consolidation measures adopted to achieve the public deficit targets. Second, questions have arisen regarding the impact that the restructuring process in certain financial institutions could have on the public accounts of some countries, specifically, in the case of Cyprus and above all Spain. This has heightened tensions in the sovereign debt markets. Third, political uncertainty stemming from the election results in Greece has marked the first half of the year. Nevertheless, there was a partial improvement in the situation toward the end of the quarter, for three reasons: in Greece a government committed to remaining in the euro zone was formed; the independent evaluations of the Spanish banking system have provided figures for aggregate capital requirements that are within the expected range, and highlighted the strengths of the biggest institutions, including BBVA; and third, the European summit at the end of June led to positive results, with specific measures that show a high level of commitment to ensuring financial stability in the euro zone.
All in all, the European economy has been badly affected and its slowdown has been intensified, although actual performance has varied widely by country: there have been upward surprises in countries such as Germany, with growth in the first quarter of 0.5%, while the periphery has entered into recession.
In the US economy, fears increased in the second quarter of a sharper slowdown. This is due to the greater uncertainty regarding the economy, as a result of the less favorable international environment. These concerns appear to be putting household and corporate spending decisions on hold. Also worth noting are the doubts regarding the fiscal stimulus programs that are due to expire at the end of 2012.
South America has continued to grow strongly in the first half of 2012 thanks to buoyant domestic demand and a relative improvement in various factors that condition the international economic outlook, especially with respect to consistently high commodity prices. Growth will slow compared to the figures for previous years, but will remain solid (at around 4%).
In Mexico, economic activity grew more strongly than toward the end of 2011, and could close the year at 3.7%. Inflation continues to move as forecast and is expected to end 2012 at below 4% (the recent upturns have been caused by non-core components). As a result, the outlook for maintaining monetary policy reference rates has been consolidated.
In China the process of economic slowdown continued to slow growth down to 7.6% year-on-year in the second quarter (8.1% in the first quarter of 2012). However, moderate inflation has given the authorities more room to implement economic stimulus policies should the global situation deteriorate further. This guarantees that the high rates of growth will continue.
Finally, economic activity in Turkey has been adversely affected in the first half of the year by its exposure to the euro zone economy. Even so, the current-account deficit has been sharply corrected over this period. Inflation is also better than expected by the authorities, but it still remains just below 9%. With respect to exchange rates, there was a year-on-year appreciation in the average rate in most currencies with an influence on the Group’s financial statements, except the Argentinean and Mexican pesos and the Turkish lira. In terms of final rates, there was a widespread appreciation in all currencies relevant for the Group, both over the quarter and in the last 12 months. To sum up, the impact of foreign currencies on the Group’s balance sheet, activity and earnings is positive in both quarterly and year-on-year terms.