Global growth continued to slow to rates slightly below 3.0% in annual terms in recent quarters, significantly below the 3.7% expansion registered in 2018. Growing trade protectionism and high uncertainty are having a negative impact on economic activity, mainly on exports and investment, adding to the cyclical moderation of the U.S. and eurozone economies. The announced countercyclical policies, led by central banks, will not be able to fully compensate for the impact of multiple sources of uncertainty. Thus, world growth forecasts stand at around 3.2% in 2019.

In terms of monetary policy, the main central banks have announced further relaxation measures in recent months. In the United States, the Federal Reserve (Fed) cut interest rates by 50 basis points between July and September to 2% and left the door open for new cuts if necessary. In the eurozone, the European Central Bank (ECB) announced in September a package of monetary measures to support the economy and the financial system, including: (i) a deposit facility interest rate cut of 10 basis points, leaving them at -0.50%; (ii) the adoption of a phased interest rate system for such deposit facility (tiering of deposit system); (iii) a new debt purchase program of €20,000m per month; and (iv) an improvement in financing conditions for banks in the ECB's liquidity auctions. In China, in addition to fiscal stimulus decisions and exchange rate depreciation, a cut in reserve requirements for banks was recently announced and official or monetary interest rates have been reduced. Accordingly, interest rates will remain low in major economies, enabling more flexibility to emerging countries for maneuver.

Spain

The latest data confirms that GDP continues to grow at a faster pace than in the rest of the eurozone, but has slowed to 0.4% quarterly in the second quarter from an average growth of around 0.7% since 2014. This shows a moderation in domestic demand, in both private consumption and investment, as well as some fading out of some stimulus and the negative impact of uncertainty.

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 5.2% in July 2019). Profitability remained under pressure (ROE of 4.8% in the first half of 2019) due to low interest rates and lower business volumes. Spanish banks maintain comfortable levels of capital adequacy and liquidity.

The United States

In the second quarter of 2019, growth decreased to 2% in annualized quarterly rates from 3.1% in the first quarter; a gradual moderation is expected for the rest of the year. The strength of consumption continues to contrast with weak investment, negatively affected by political uncertainty and lower global growth, coupled with unfavorable performance of net exports and inventories. In the absence of inflationary pressures, the Fed may lower interest rates further, which would be in addition to the cuts made between July and August 2019, which would be a factor that could contribute to prevent further slowdown in the face of rising uncertainty and the extension of still-unresolved trade disputes.

The most recent banking activity data (August 2019) shows that loans and deposits in the system grew at rates of 5.4% and 4.0%, respectively. NPLs continued to decrease, with the non-performing loan ratio stood at 1.45% in the second quarter of 2019.

Mexico

The economy stagnated in the first half of the year and there are no signs of recovery in the short term, especially in terms of investment. There are a number of factors behind this behavior: the delay in the ratification of the new trade agreement with the United States and Canada, the continued uncertainty due to external and internal factors, the deceleration of the manufacturing sector in the United States, as well as the slowdown in employment and private consumption. In this context, inflation moderated significantly from mid-year to 3% in September, which led the central bank to initiate the cycle of interest rate decreases, with two 25 basis points cuts in August and September to 7.75%. There are likely to be further cuts in the future to alleviate the slowdown in growth and the persisting uncertainty.

The banking system continues to grow year-on-year terms. According to data from August 2019, loans and deposits grew by 7.9% and 7.3% respectively, with increases in all portfolios. Non-performing loans remained under control (NPL ratio of 3.2%, compared to 3.3% twelve months earlier) and 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 1.6% and the recovery continued in the second quarter with growth of 1.2%. The correction of domestic demand seems to be coming to an end, although going forward the strong contribution from foreign demand is likely to moderate. The economy is expected to grow by 0.3% in 2019. The slowdown in inflation continued in recent months, dropping to below 10% in September. In this context, the central bank cut the interest rate by 425 basis points in July and another 325 basis points in September to 16.5%.

As of August 2019, total loan volumes in the system decreased 6.1% year-on-year (up 0.6% in local currency and down 14.6% in foreign currency) while the system's NPL ratio stood at 4.6%.

Argentina

Following the outcome of the primary elections in mid-August, capital outflows led to sharp exchange rate depreciation, a situation that the government attempted to alleviate with highly restrictive monetary policy and with capital control measures. All this resulted in a sharp rise in inflation, a fall in real wages and hence in consumption and investment. The external sector will be the sole support for the activity, prompted by the depreciation impact on exports along with a considerable adjustment of imports. Moving forward, there is uncertainty about the measures and policies that will be implemented after the elections to combat the crisis.

In the financial system, loans and deposits grew at high rates, albeit with the notable influence of high inflation. Profitability indicators are very high (ROE: 41.1% and ROA: 4.5% in July 2019) while non-performing loans increased to show a NPL ratio of 4.7% in July 2019.

Colombia

The economy continues to recover, with average annual growth of about 3.0% in the first two quarters of the year, after growing 2.6% in all 2018. Recovery is still driven by consumption, while non-construction investment is being consolidated. Moving forward, some moderation of private consumption is expected in light of the deterioration of the labor market and weakened confidence, although this will be partly offset by higher expenditure linked to the increase in immigration, while investment in construction should begin to show signs of recovery. However, growth is expected to remain relatively stable at about 3% in the coming quarters. Colombia's monetary authority maintained the benchmark rate at 4.25% during the quarter.

The total loans system grew by 7.7% year-on-year in July 2019, with a NPL ratio of 4.7%. Total deposits increased by 6.9% year-on-year in the same period.

Peru

Activity continued to slow in the second quarter of the year, reflected in an average annual growth of under 2% in the first half of the year from rates of around 4% in 2018. This weak growth responds to the unfavorable performance of primary activities, which remains negative due to temporary factors. The latest indicators suggest that annual growth could rise slightly above 3% on average in the second half of the year. However, the risk remains that the recent increase in political uncertainty will end up weighing on confidence in the coming quarters. In this context, with inflation below the target of 2%, the central bank lowered the interest rate by 25 basis points to 2.5% in August and, despite not having made any changes in the last months, the possibility of an additional decrease in the future remains.

The banking system is showing moderate year-on-year growth rates in loans and deposits (up 7.1% and up 9.5% respectively in July 2019), with reasonably high levels of profitability (ROE: 18.8%) and contained non-performing loans (NPL ratio: 2.6%).

Interest rates (Percentage)

	30-09-19	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	0.00
Euribor 3 months (1)	(0.42)	(0.33)	(0.31)	(0.31)	(0.32)	(0.32)	(0.33)
Euribor 1 year (1)	(0.34)	(0.19)	(0.11)	(0.13)	(0.17)	(0.18)	(0.19)
USA Federal rates	1.90	2.40	2.43	2.40	2.18	1.91	1.67
TIIE (Mexico) (1)	8.20	8.51	8.52	8.41	8.11	7.93	7.83
CBRT (Turkey)	16.31	23.86	25.50	24.06	24.01	17.77	12.75

• ⁽¹⁾ Calculated as the month average.

Exchange rates (Expressed in currency/euro)

	Year-end exchange rates			Average exchange rates
	30-09-19	∆% on 30-09-18	∆% on 31-12-18	Jan.-Sep. 19	∆% on Jan.-Sep. 18
Mexican peso	21.4522	1.5	4.8	21.6315	5.1
U.S. dollar	1.0889	6.3	5.2	1.1236	6.3
Argentine peso	62.4130	(26.7)	(30.6)	62.4130	(26.7)
Chilean peso	790.19	(3.1)	0.7	770.44	(2.6)
Colombian peso	3,769.78	(8.2)	(0.6)	3,639.63	(5.3)
Peruvian sol	3.6805	3.6	4.9	3.7378	4.2
Turkish lira	6.1491	13.3	(1.5)	6.3401	(13.1)