Global growth decelerated in 2019 to growth rates slightly below 3% in annual terms in the second half of the year, below the 3.6% of 2018. Increased trade protectionism and geopolitical risks had a negative impact on economic activity, mainly on exports and investment, additionally to the structural slowdown in the Chinese economy and the cyclical moderation of the US and eurozone economies. However, the counter-cyclical policies announced last year, led by central banks, along with the recent reduction in trade tensions between the United States and China and the disappearance of the risk of a disorderly Brexit in the short term, are leading to some stabilization of global growth, based on the relatively strong performance of private consumption supported by the relative strength of labor markets and low inflation. Thus, global growth forecasts stand around 3.2% for both 2019 and 2020.

In terms of monetary policy, the major central banks took more loosening measures last year. In the United States, the Federal Reserve reduced interest rates between July and October by 75 basis points to 1.75%. 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 reduction of ten basis points, leaving them at -0.50%, (ii) the adoption of a phased interest rate system for the previously mentioned deposit facility, (iii) a new debt purchase program of 20 billion euros per month, and (iv) an improvement in financing conditions for banks in the ECB's liquidity auctions. The latest signs of growth stabilization contributed to the decision of both monetary authorities to keep interest rates unchanged in recent months, although additional stimulus measures are not ruled out in the event of a further deterioration of the economic environment. In China, in addition to fiscal stimulus decisions and exchange rate depreciation, a cut in reserve requirements for banks was recently announced and base rates have been reduced. Accordingly, interest rates will remain low in major economies, enabling emerging countries to gain room for maneuver.

Spain

In terms of growth, the latest data confirms that GDP continues to grow at a higher rate than in the rest of the eurozone,though it has slowed to 0.4% quarterly in the second quarter of 2019 from an average growth of around 0.7% since 2014, and stabilized in the third quarter. This result reflects a moderation in domestic demand, in both private consumption and investment, as well as some fading stimuli and the negative effect of uncertainty.

As for the banking system, the total volume of credit to the private sector continues to decline while asset quality indicators improve (the non-performing loan ratio was 5.1% in October 2019). Profitability remained under pressure (ROE of 5.2% in the first nine months of 2019) due to low interest rates and lower business volumes. Spanish institutions maintain comfortable levels of capital adequacy and liquidity.

The United States

In the third quarter of 2019, growth remained stable at 2.1% on an annualized quarterly basis , following the slowdown observed in the previous quarter from rates of 3.1% at the beginning of last year, confirming a period of economic moderation and dispelling , for the time being, , fears of a recessionary scenario. The strength of private consumption, based on the soundness of the labor market, continues to contrast with weak investment, negatively affected by political uncertainty and lower global growth, coupled with poorer performance of net exports. In this context, the Federal Reserve points to a pause in interest-rate cuts to 1.75% as long there are no l significant changes in the scenario, although additional stimulus measures are not ruled out in the event of a further deterioration in the economic environment, nor an upward adjustment if inflation rises more than expected.

In the banking system, as a whole, the most recent activity data (November 2019) show that credit and deposits in the system are growing at year-on-year rates of 4.0% and 10.6%, respectively. Non-performing loans remain under control; thus the with the non-performing loan ratio stood at 1.46% at the end of the third quarter of 2019.

Mexico

In terms of growth, the economy stagnated in the third quarter of 2019 after three quarters of slight contraction (about -0.1% per quarter) and no signs of recovery were visible in the last quarter of the year, especially in terms of investment. Several f factors were behind this behavior: the delay in ratifying f the new trade agreement between the United States and Canada, the continuing uncertainty due to external and internal factors, the slowdown in the manufacturing sector in the United States, as well as the slowdown in employment and private consumption. In this context, inflation declined rapidly and significantly from annual rates of just over 4% in mid-year to 2.8% in December 2019, promoting the central bank to initiate an interest rate-cut cycle, with four cuts of 25 basis points between August and December, to 7.25%.

The banking system continued to grow year-on-year. According to data from November 2019, lending and deposits grew by 4.7% and 4.0% year-on-year respectively, with increases in all portfolios. The non-performing loan ratio remained under control (2.24% in November 2019, compared to 2.18% twelve months previously) and capital indicators were comfortable.

Turkey

In terms of growth, the Turkish economy technically emerged from the recession in the first quarter of 2019, growing by 1.7% on a quarterly basis, and the recovery continued although at a more moderate rate in the second and third quarters (1.0% and 0.4%, respectively). The correction in domestic demand seems to have ended in the third quarter with the recovery of private consumption and investment, although support for net exports dissipated and slightly hampered growth. The economy is expected to have grown by 0.8% in 2019. Inflation slowed significantly during the second half of the year, from rates of just over 20% to around 12% in December. In this context, the central bank cut the interest rate by 425 basis points in July, 325 basis points in September, 250 basis points in October, 200 basis points in December down to a 12.00% interest rate at the end of the year. In January 2020, the central bank reduced the interest rate 75 basis points to 11.25%.

With data from November 2019, the total volume of credit in Turkish liras in the banking system increased by 11.4% year-on-year while credit in foreign currency grew by 4.9% in the same period. The NPA ratio stood at 5.3% at the end of November 2019.

Argentina

With regards to economic growth, following the outcome of the primary elections in mid-August 2019, capital outflows led to a sharp exchange rate depreciation, a situation that the government attempted to alleviate with a highly restrictive monetary policy and capital control measures. All this resulted in a rapid deterioration in confidence, a sharp increase in inflation, a fall in real wages and consequently, a sharp contraction in consumption and investment. The external sector is the sole support for the activity, prompted by the boost of depreciation on exports along with a considerable adjustment of imports. There is uncertainty about the measures and policies that will be implemented to tackle the crisis.

In the banking system, loans and deposits are growing at high rates, although with a significant influence of high inflation. Profitability indicators are very high (ROE: 42.9% and ROA: 4.8% in October 2019) and non-performing loans increased, with a NPL ratio of 4.9% in October 2019.

Colombia

The economy continued to recover in 2019, with growth slightly above the 3.0% year-on-year average level until the third quarter, after advancing 2.6% in 2018. The recovery continues to be driven by consumption as well as investment in machinery and equipment. Private consumption is expected to moderate somewhat in light of the deterioration of the labor market and weak confidence, although this will be partly offset by higher expenditure linked to the increase in immigration, while investment in construction should start to show signs of recovery, supported by some public policies. Nevertheless, growth is expected to remain relatively stable in the coming quarters. Inflation increased in the second half of the year to levels around 3.8% due mainly to the effect of the exchange rate depreciation, but still within the target range of the Bank of the Republic, which kept the reference interest rate at 4.25%.

Total credit in the banking system grew by 9.1% year-on-year in September 2019, with a non-performing loan ratio of 4.4%. Total deposits increased by 8.5% year-on-year in the same period.

Peru

Activity slowed in 2019, with annual growth of about 2% from rates of around 4% in 2018. This weak growth responded to the worse performance of primary activities, and to a lower public investment that was noted in construction and some manufacturing. In this context, with inflation below the 2% target, the central bank lowered the interest rate by 50 basis points between August and November to 2.25%. In 2020, the growth of the Peruvian economy could gain traction once some of the temporary factors that affected primary activities disappear, once public investment returns to normal and reconstruction efforts resume in some areas of the north of the country.

The banking system showed moderate year-on-year growth rates in lending and deposits (+7.3% and +12.0% respectively, in September 2019), with reasonably high levels of profitability (ROE: 18.9%) and contained non-performing loans (NPL ratio: 2.7%).

Interest rates (Percentage)

	31-12-19	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	0.00
Euribor 3 months (1)	(0.39)	(0.42)	(0.33)	(0.31)	(0.31)	(0.32)	(0.32)	(0.33)
Euribor 1 year (1)	(0.26)	(0.34)	(0.19)	(0.11)	(0.13)	(0.17)	(0.18)	(0.19)
USA Federal rates	1.75	2.00	2.50	2.50	2.50	2.25	2.00	1.75
TIIE (Mexico)	7.25	7.75	8.25	8.25	8.25	7.75	7.75	7.50
CBRT (Turkey)	12.00	16.50	24.00	24.00	24.00	24.00	17.75	8.00

• ⁽¹⁾ Calculated as the month average.

Exchange rates (Expressed in currency/euro)

	Year-end exchange rates			Average exchange rates
	31-12-19	∆% on 31-12-18	∆% on 30-09-19	2019	∆% on 2018
U.S. dollar	1.1234	1.9	(3.1)	1.1195	5.5
Mexican peso	21.2202	6.0	1.1	21.5531	5.3
Turkish lira	6.6843	(9.4)	(8.0)	6.3595	(10.3)
Peruvian sol	3.7205	3.8	(1.1)	3.7335	3.9
Argentine peso (1)	67.29	(35.7)	(7.2)	-	-
Chilean peso	841.13	(5.4)	(6.1)	786.75	(3.8)
Colombian peso	3,681.54	1.7	2.4	3,673.67	(5.2)

• ⁽¹⁾ According to IAS 29 "Financial information in hyperinflationary economies", the year-end exchange rate is used for the conversion of the Argentina income statement.