Report 4Q 2022

The global economy has decelerated throughout the course 2022, in an environment marked by strong inflationary pressures, an aggressive tightening of monetary conditions, the adverse impact of the war in Ukraine and slower growth in China.

Despite the slowing trend, economic growth showed some resilience and was generally higher than expected by most analysts. This was due to previously accumulated savings, the process of normalization of activity after the restrictions and disruptions generated by the COVID-19 pandemic, and the dynamism of the labor markets, which contributed to an improvement in private consumption and the service sector.

Inflation remained at elevated levels in 2022. However, after surprising on the upside for most of the year, it started to moderate in recent months. This is in line with the slowing trend in aggregate demand, the recent moderation in energy prices and normalization in global supply chains. At year-end, annual inflation stood at 6.5% in the United States and 9.2% in the Eurozone.

Against this backdrop of still elevated inflationary pressures, central banks continued to tighten monetary policy. The U.S. Federal Reserve ("the Fed") raised benchmark interest rates to 4.5% in December (a level 425 basis points higher than at the beginning of 2022) and kept up asset sales to reduce the size of its balance sheet. Further, the Fed indicated that interest rate hikes will continue in the coming months, albeit at a slower pace. In the Eurozone, the ECB has raised interest rates for its refinancing operations to 2.5% in December (a level 250 basis points higher than at the start of 2022). In addition, the central bank has tightened the conditions of its liquidity supply to banks through the TLTRO operations (targeted long-term refinancing operations) and has indicated that it will soon initiate a program to sell its assets. In a context of high uncertainty, BBVA Research's central scenario estimates that the global economy will continue to slow down in the near future, with possible episodes of recession in the Eurozone and the United States. This slowdown in growth will be mainly due to the significant tightening of monetary conditions (interest rates are expected to reach close to 5.0% in the United States and 3.75% in the Eurozone in the coming months; these are clearly contractionary levels, which will remain unchanged until at least the final months of the year 2023) and inflationary pressures are still significant, despite the prospects for moderation.

According to BBVA Research, after growing by 6.3% in 2021 and around 3.3% in 2022, global GDP will grow by only 2.3% in 2023. In the United States, growth would slow to 1.9% in 2022 and 0.5% in 2023, as strong monetary tightening is expected to cause a downward adjustment on growth. In the Eurozone, GDP is expected to slightly fall in the coming quarters, primarily due to the disruptions created by the war in Ukraine, including still high gas prices. The annual growth in the region would be 3.2% in 2022 and -0.1% in 2023. In China, the growth would reach 3,0% in 2022 and 5,0% in 2023, but the wider spread of COVID-19 infections following the financial strains caused by imbalances in real estate markets could trigger slower-than-expected economic growth.

The uncertainty remains at high levels and the risks could have a downward bias on growth. Specifically, sustainable inflation could trigger even stronger interest rate hikes and therefore, a deeper and more widespread recession, as well as higher financial volatility.

The main indexes have shown a negative performance in the year 2022. In Europe, the Stoxx Europe 600 index decreased by 12.9% compared to the end of December of the previous year, and in Spain the Ibex 35 fell by 5.6% in the same period, showing a better relative performance. In the United States, the S&P 500 index also decreased by 19.4%.

With regard to the banking sector indexes, their performance during 2022 was better than the general indexes in Europe. The Stoxx Europe 600 Banks index, which includes the banks in the United Kingdom, and the Euro Stoxx Banks, an index of Eurozone banks, decreased by 3.2% and 4.6% respectively, while in the United States, the S&P Regional Banks sector index fell by 17.0% in the period.

The BBVA share price increased by 7.3% during the year, closing the month of December 2022 at €5.63.

The BBVA share and share performance ratios

Regarding shareholder remuneration, a cash gross distribution in the amount of €0.31 per share on April as final dividend of 2022 and the execution of a Share Buyback Program of BBVA for an amount of €422m, subject to the correspond regulatory authorizations and the communication with the program specific terms and conditions before its effective start, are expected to be submitted to the relevant governing bodies for consideration. Thus, the total distribution for the year 2022 will reach €3,015m, 47% of the net attributable profit, which represents €0.50 per share, and also includes the payment in cash of €0.12 per share paid on October 2022 as interim dividend of the year.

After the redemption of the shares acquired in the execution of the First and Second Tranche within the executed Program Scheme during 2021 and 2022 (281,218,710 and 356,551,306 own shares of BBVA, respectively), BBVA's share capital as of December 31, 2022, has been set at 2,954,757,116.36 euros, represented by 6,030,116,564 shares with a nominal value of €0.49 each.

For its part, on December 31, 2022, the number of shareholders reached 801,216, and by type of investor, 58.83% of the capital belonged to institutional investors and the remaining 41.17% was in the hands of retail shareholders.

BBVA shares are included on the main stock market indexes. At the closing of December 2022, the weighting of BBVA shares in the Ibex 35, Euro Stoxx 50 and the Stoxx Europe 600 index, were 7.8%, 1.2% and 0.4, respectively. They are also included on several sector indexes, including Stoxx Europe 600 Banks, which includes the United Kingdom, with a weighting of 4.5% and the Euro Stoxx Banks index for the eurozone with a weighting of 7.9%. In addition to these indexes, BBVA forms part of the main sustainability indexes, such as, Dow Jones Sustainability Index (DJSI), FTSE4Good and theMSCI ESG Indexes.