Macro and industry trends
Global growth is slowing in the face of protectionist pressures affecting the global industrial sector and international trade, although first quarter data indicates a certain degree of stabilization, supported by the strength of the service sector, strong employment and low inflation. This trend is occurring across all regions, with cyclical slowdown in the United States, the trend toward growth moderation in China and the consolidation of lower growth in Europe. Thus, global growth is forecasted at around 3.3% in 2019 and 2020, implying a soft landing. However, the deterioration of trade negotiations between the United States and China since late April poses a major risk to the global economy.
In terms of monetary policy, the main central banks signaled their intention to adopt further measures that would provide a stimulus to counteract the high level of uncertainty in the economy, as well as the continued decrease in the long-term inflation outlook. The Federal Reserve, after raising its benchmark interest rate to 2.50% in December, laid the foundations to initiate interest rate reductions in the face of more moderate growth forecasts, weighed down by the trade threat and political uncertainty. For its part, the ECB strengthened its accommodative monetary policy stance by approving a new liquidity provision program, postponing its commitment to maintain interest rates at current levels until mid-2020, and indicating that it has a range of instruments at its disposal to combat growth and inflation risks, including the reduction of deposit rates or the renewal of the bond purchase program. Accordingly, interest rates will remain low in major economies, enabling emerging countries to gain room to maneuver.
Spain
The most recent data confirms that GDP is growing at a faster pace than in the rest of the eurozone, with a growth of 0.7% in the first quarter of 2019 and a rate between 0.6% and 0.7% expected for the second quarter. The activity was driven by investment in machinery and equipment as well as tourism, which offset moderation in both public and private consumption, and exports of goods.
With regard to the banking system, both the deleveraging of the system and the improvement in asset quality indicators continue (the NPL ratio stood at 5.7% in April 2019). Profitability remained under pressure (ROE of 5.8% in the first quarter of 2019) due to low interest rates and lower business volumes. Spanish banks maintain comfortable levels of capital adequacy and liquidity.
United States
In the first quarter of 2019, GDP grew by 3.1% on a year-on-year rate, the highest rate in four years, and growth is expected to be below 2% in the second quarter. The largest contribution in the first quarter came from net exports, inventory accumulation and local government spending. However, private consumption and fixed investment slowed, reflecting decreases in durable goods consumption and residential construction. In the absence of inflationary pressures, the Federal Reserve may lower interest rates, which would be a factor that would contribute to preventing further slowdown in the face of rising uncertainty and the prolongation still-unresolved trade disputes.
The most recent bank activity figures (May 2019) shows that loans and deposits grew at rates of 4.3% and 5.1%, respectively. Non-performing loans continued to decrease, with the NPL ratio standing at 1.55% at the end of the first quarter of 2019.
Mexico
GDP contracted in the first quarter of 2019 (down 0.2% quarter-on-quarter) and remains weak in the second quarter despite the strength of the services sector. This weakness is due to several factors: the delay in the ratification of the new USMCA (the United States, Mexico and Canada Agreement), the weakness of investment, continued uncertainty due to external and internal factors, the deceleration of the manufacturing sector in the United States and the slowdown in private consumption and job creation. The central bank remains cautious, but the good performance of inflation (forecast at 3.4% in 2019) and the exchange rate would allow interest rates to be cut to alleviate the slowdown in growth.
The banking system continues to grow in year-on-year terms. According to data May 2019, loans and deposits grew by 8.3% and 7.6%, respectively, with increases in all portfolios. The non-performing loan ratio remained under control (2.16%, compared to 2.20% twelve months earlier) while capital indicators remain at comfortable levels.
Turkey
The Turkish economy technically moved out of recession in the first quarter of 2019, growing at a quarterly rate of 1.3%, while the year-on-year rate remains negative and declined by 2.6%. The economy is expected to grow by 0.3% in 2019. However, risks remain and a prudent policy combination continues to be key to keeping the recovery trend alive. The disinflationary process continued in the first months of the year at a faster pace than expected, which allowed inflation to decrease from 20.3% in December 2018 to 15.7% in June of this year. In this context, a cycle of official interest rate cuts can begin.
With figures of May 2019, the total loan volume in the system grew by 8.9% year-on-year (down 0.1% in local currency and up 25.4% in foreign currency affected by the variation effect of the exchange rate). The system's NPL ratio stood at 4.2% in May 2019.
Argentina
In the first half of 2019, the economy improved slowly after a sharp contraction in 2018, as a consequence of the currency crisis and a severe drought on the primary sector. In the first quarter of 2019, GDP contracted by 0.2% compared to the previous quarter, while slight growth is expected from the second quarter onwards, driven by the good performance of the sectors related to agriculture and the positive effects of lower volatility, as well as the positive effect of the higher confidence of the agents. During the second quarter, inflation has improved at a lower pace, reflecting the contractionary monetary policy of the central bank and the calm in the currency market, which we expect a decline in the next year.
In the financial system, loans and deposits are growing at high rates, albeit with the notable influence of high inflation. Profitability indicators are very high (ROE: 41.2% and ROA: 4.5% in April 2019) and non-performing loans increased, with a NPL ratio of 4.2% in April 2019.
Colombia
The economy continues to recover at a slow pace after the oil price crisis, growing by 2.6% in 2018 and 2.8% in the first quarter of 2019. This recovery was driven mainly by consumption, both private and public, and recently by a recovery in investments not related to construction. Investment in construction is still affected by the aftermath of the previous economic cycle, since the high level of stock caused a reduction in the launch of new constructions and therefore, the production of the sector. Going forward, it is expected that the economy will grow at a faster pace, reaching 3.0% growth in this year.
The total loan system grew by 6.9% year-on-year in April 2019, with a NPL ratio of 4.7%. Total deposits increased by 6.6% year-on-year in the same period.
Peru
GDP in the first quarter of 2019 contracted, although is expected to recover slightly in the second quarter. This low growth is mainly due to the primary sector (extractive industries) which remain negative due to factors of a temporary nature. Simultaneously, the expenditure indicators aims to moderation, while the recovery in investment was lower. It is expected that growth for the first half of the year will be around 3%. The central bank maintains interest rates at 2.75%, which implies an expansionary tone in monetary policy. The context of a transitory slowdown in activity, increased external volatility and anchored inflation expectations suggest the possibility of cutting interest rates.
The banking system is showing moderate year-on-year growth rates in lending and deposits (up 7.6% and up 10.5%, respectively, in April 2019), with reasonably high levels of profitability (ROE: 18.2%) and contained non-performing loans (NPL ratio: 2.5%).
End of period interest rates (Percentage)
| 30-06-19 | 31-03-19 | 31-12-18 | 30-09-18 | 30-06-18 | 31-03-18 | |
|---|---|---|---|---|---|---|
| Official ECB rate | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Euribor 3 months | (0.33) | (0.31) | (0.31) | (0.32) | (0.32) | (0.33) |
| Euribor 1 year | (0.19) | (0.11) | (0.13) | (0.17) | (0.18) | (0.19) |
| USA Federal rates | 2.40 | 2.43 | 2.40 | 2.18 | 1.91 | 1.67 |
| TIIE (Mexico) | 8.51 | 8.52 | 8.41 | 8.11 | 7.93 | 7.83 |
| CBRT (Turkey) | 23.86 | 25.50 | 24.06 | 24.01 | 17.77 | 12.75 |
Exchange rates (Expressed in currency/euro)
| Year-end exchange rates | Average exchange rates | ||||
|---|---|---|---|---|---|
30-06-19 |
∆% on 30-06-18 |
∆% on 31-12-18 |
1H19 |
∆% on 1H18 |
|
| Mexican peso | 21.8201 | 4.9 | 3.1 | 21.6509 | 6.6 |
| U.S. dollar | 1.1380 | 2.4 | 0.6 | 1.1297 | 7.2 |
| Argentine peso | 48.7557 | (33.5) | (11.2) | 48.7557 | (33.5) |
| Chilean peso | 773.68 | (2.4) | 2.8 | 763.29 | (3.0) |
| Colombian peso | 3,638.45 | (5.6) | 2.9 | 3,602.32 | (4.3) |
| Peruvian sol | 3.7402 | 2.0 | 3.3 | 3.7516 | 4.8 |
| Turkish lira | 6.5655 | (18.7) | (7.7) | 6.3577 | (22.0) |