Macro and industry trends
World GDP grew by 3.8% in 2018, despite the slowdown in the second half of the year. In the first quarter of 2019, global growth moderated due to manufacturing and trade weaknesses. However, the service sector and employment remain robust. The cyclical slowdown in the United States and China's moderation trend have been accompanied by an unexpected slowdown in Europe, affected by global trade tensions and idiosyncratic factors (such as regulatory changes in the automobile sector, protests in France and, mainly, Brexit).
In light of greater cyclical weakness and in the absence of inflationary pressures, main central banks have reacted with more accommodative monetary policies. The United States Federal Reserve (Fed), after raising benchmark interest rates to 2.50% in December, has signaled a pause that is likely to continue until the end of 2019, and will put an end to the reduction in its balance earlier than expected. The European Central Bank, after completing the asset purchase program in December and in the face of weak economic activity, has announced a new round of liquidity auctions, delaying the interest rates increase, which is no longer expected until mid-2020 at the earliest. Furthermore, the Chinese authorities have been adopting fiscal and monetary stimuli following recent signs of weakening activity. Thus, interest rates will remain low for longer in the developed economies, allowing emerging countries to gain room for maneuver. These stimuli are a factor supporting growth, but a moderation on growth rates is expected for the coming quarters.
Spain
The Spanish economy grew by 2.6% in 2018, above the euro area (1.8%). In the first quarter of 2019, growth remains strong due to the good performance of public and private consumption, while exports and investment in machinery and equipment are slowing down. In the coming quarters the economy will grow at a lower pace due to the exhaustion of the fiscal stimulus and the global weakness, while uncertainty about economic policy will continue to have a negative impact on activity.
Regarding the banking sector, the system’s de-leveraging and the improvement of asset quality indicators (NPL of 5.8% in January 2019) continued. Profitability remains under pressure (ROE at the close of 2018 stands at 5.4%) due to the low interest rate environment and lower business volumes. Spanish banks continue to have high levels of solvency and liquidity.
United States
The United States grew 2.9% in 2018, its unemployment rate fell below 4% and the Fed increased rates to 2.50%. Growth is being moderated by increased interest rates, the global slowdown, the exhaustion of the fiscal stimulus and political uncertainty. Some financial indicators show an increase in the risk of recession, but the economy maintains a good growth rate, especially in consumption. The pause in interest rate rises is a supporting factor.
The most recent bank activity figures show that credit and deposits are growing at rates of 5.2% and 3.3% respectively. Delinquencies continued to fall. In the fourth quarter of 2018, the NPL ratio was 1.57%.
Mexico
As of the end of 2018, the economy closed with a rate of growth of 2%. In the first months of 2019, the service sector was resilient and private consumption gave positive signs following the weakness of the fourth quarter of 2018. However, private investment remains weak while the manufacturing sector and exports are moderating. The central bank continues with its restrictive bias; however, good figures for inflation and the exchange rate would allow interest rates to be cut to mitigate the foreseeable slowdown in growth.
The banking system continues to grow in year-on-year terms. With figures as of February 2019, loans and deposits grew by 9.4% and 8.5%, respectively, showing growth in all segments. Delinquencies remain contained (2.11%, compared to 2.20% twelve months earlier) while capital indicators remain at comfortable levels.
Turkey
The economy grew 2.6% in 2018, after registering two consecutive quarters of decline. Consumption and investment registered a sharp contraction, partially offset by external demand. Although activity kept falling at the beginning of the year, it seems to have reached a bottom. Interest rates will remain high until exchange rate pressure is resolved and inflation moderates. The Government has announced a new economic plan, some of the measures include the capitalization of the banking system and the strengthening of the asset quality.
As of the end of the first quarter of 2019, the banking system showed high growth rates. Total credit in the system (adjusted for the exchange rate effect) grew 18.1% with growth in all portfolios, driven especially by public banks after the government's package of measures to support SMEs. The NPL ratio of the system is 4.1%.
Argentina
The economy registered a sharp contraction in 2018 (GDP fell by 2.5%) following the exchange rate crisis and a severe drought. But the end of the first quarter presents signs of a lukewarm recovery in activity, while the IMF has approved an additional US$ 10.8 billion loan after favorably completing the third review of its support program. Inflation remains high and with strong inertia due to the impact of exchange rate depreciation, despite a more contractionary monetary policy. In the financial system, loans and deposits are growing at high rates, with a notable influence of the high inflation. As of January 2019, profitability indicators are very high (ROE: 37% and ROA: 4.2%) and delinquencies remain contained, with a NPL ratio of 3.2%.
Colombia
The Colombian economy grew by 2.6% in 2018. Growth continued in the first quarter of 2019, supported by private consumption and public spending, while investment has not taken off. With weak demand and low inflation (about 3%), the central bank has held interest rates at 4.25% and it is not expected to increase them in the short term. In Colombia, as of January 2019, the system's total credit grew by 5.9% year-on-year, with a NPL ratio of 4.7%. Since January 2018, total deposits increased 4.7%.
Peru
After growing by 4% in 2018, growth is moderating mainly explained by the primary sector, construction and the recent fall in public investment. The central bank has held interest rates at 2.75%, which implies an expansionary bias for monetary policy. Interest rates are expected to rise in the coming months. The banking system presents moderate year-on-year growth rates in loans and deposits (+9.3% and +5.7% respectively, as of January 2019), with reasonably high profitability levels (ROE: 18.5%, ROA: 2.7%).
End of period interest rates (Porcentage)
| 2019 | 2018 | ||||
|---|---|---|---|---|---|
| 1Q | 4Q | 3Q | 2Q | 1Q | |
| Official ECB rate | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Euribor 3 months | (0.31) | (0.31) | (0.32) | (0.32) | (0.33) |
| Euribor 1 year | (0.11) | (0.13) | (0.17) | (0.18) | (0.19) |
| USA Federal rates | 2.43 | 2.40 | 2.18 | 1.91 | 1.67 |
| TIIE (Mexico) | 8.52 | 8.41 | 8.11 | 7.93 | 7.83 |
| CBRT (Turkey) | 25.50 | 24.06 | 24.01 | 17.77 | 12.75 |
Exchange rates (Expressed in currency/euro)
| Year-end exchange rates | Average exchange rates | ||||
|---|---|---|---|---|---|
31-03-19 |
∆% on 31-03-18 |
∆% on 31-12-18 |
1Q19 |
∆% on 1Q18 |
|
| Mexican peso | 21.6910 | 3.8 | 3.7 | 21.8057 | 5.6 |
| U.S. dollar | 1.1235 | 9.7 | 1.9 | 1.1358 | 8.2 |
| Argentine peso | 48.9734 | (49.3) | (11.6) | 48.9734 | (49,3) |
| Chilean peso | 765.20 | (2.5) | 4.0 | 757.96 | (2.3) |
| Colombian peso | 3,585.02 | (4.5) | 4.5 | 3,561.35 | (1.5) |
| Peruvian sol | 3.7275 | 6.7 | 3.6 | 3.7738 | 5.4 |
| Turkish lira | 6.3446 | (22.8) | (4.5) | 6.1102 | (23.2) |