[PPT] - The Portuguese Economy October 2017 Carlos Andrade Chief PowerPoint Presentation

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The Portuguese Economy

October 2017

Carlos Andrade Chief Economist, Novo Banco ,

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The Portuguese economy, with a nominal GDP close to EUR 192 billion, has its activity mainly (but not exclusively) focused on services.

GDP per capita and GDP per person employed

Agriculture

Gross Value Added by sector, 2016 (%). GDP per capita and GDP per person employed (PPS, EU average = 100).

75 80 85 GDP it 78.9 79.4 Agriculture, forestry and fisheries 2% Industry 14% Other services activities 30% 55 60 65 70 GDP per capita Energy, water and sanitation 5% Construction 4% 30% 35 40 45 50 1960 1968 1976 1984 1992 2000 2008 2016 GDP per person employed Distribution and vehicle repairs; accomodation and restaurants Financialservices

130 140

Global well being index (2004 =100).

Quality of life

(h l h d i k lif

131.5

1960 1968 1976 1984 1992 2000 2008 2016 restaurants 20% Transport and warehousing; information Financial services, insurance and real estate 17%

90 100 110 120 130 (health, education, work-life balance, happiness, etc.)

M t i l ll b i 87 6

services and communications 8% 50 60 70 80 90

Material well being

(income, poverty, employment,

Indebtedness, etc.)

87.6

40 50 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

1

Sources: INE, PORDATA, AMECO, NB Economic Research.

SLIDE 3

GDP growth (% QoQ and YoY) Economic Sentiment Indicator vs. GDP growth

A sustained recovery is under way. GDP increased 3% YoY in Q2 2017, with strong YoY growth in exports and fixed investment.

GDP growth (% QoQ and YoY). g (points and % YoY).

QoQ YoY

Q3'16 Q4'16 Q1'17 Q2'17 Q3'16 Q4'16 Q1'17 Q2'17

110 115 120 2 3 4 GDP (LHS) Private Consumption 0.4 1.1 0.9 -0.5 1.9 3.0 2.3 2.1 Public Consumption

0.8 0.1

0.0 0.0 0.2 0.0 -0.4

0.9

Investment

2.8 6.1

0.0 4.5

1.8

3.6 7.7 9.3 90 95 100 105 110 2

1

1 2 Exports 2.5 2.7 2.9 -0.1 5.5 6.6 9.5 8.2 Imports

0.1 4.8

1.9 0.1 3.9 7.7 8.8 7.5 GDP 0.8 0.8 1.0 0.3 1.7 2.0 2.8 3.0 75 80 85 90

5
4
3
2

2006 2008 2010 2012 2014 2016 ESI (RHS)

Consumer confidence (net balances) and private consumption coincident indicator (% YoY). Business confidence indicators (net balances).

2006 2008 2010 2012 2014 2016 40 Manufacturing 10 3 4 Coincidentindicator (LHS)

20

20 Manufacturing Services

20
10

2

1

1 2 3

60
40

Construction

50
40
30
6
5
4
3
2

Cons merconfidence(RHS)

2

Sources: INE, European Commission, Bank of Portugal, NB Economic Research.

80

2001 2003 2005 2007 2009 2011 2013 2015 2017

60
7

2008 2010 2012 2014 2016 Consumer confidence (RHS)

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Household disposable income vs. consumption

Private consumption growth supported by rising disposable income (with higher wages and lower unemployment).

Unemployment rate (% of labour force monthly data) (EUR billion and % change, nominal values). Unemployment rate (% of labour force, monthly data).

16 18 20 130 135 Disposable Income

Q2 2017: +3.0% YoY +0.9% QoQ

6 8 10 12 14

Aug 2017: 8.9%

115 120 125

Q1 2017: +3.4% YoY +0.9% QoQ

2 4 6 2000 2002 2004 2006 2008 2010 2012 2014 2016 100 105 110 2006 2008 2010 2012 2014 2016 Consumption

0.9% QoQ

Consumer Survey Major purchases over the next 12 months (net balances). Employment expectations in manufacturing and services (net balances).

20 10

September

20
10

10

5

5 Manufacturing

50
40
30
20
15
10

Services

3

Sources: INE, GPEARI, European Commission, NB Economic Research.

60

1990 1994 1998 2002 2006 2010 2014

25

2008 2010 2012 2014 2016

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Industrial production and services turnover

Business fixed investment is supporting the ongoing recovery.

Production and imports of investment goods (% YoY) (% YoY, 3m MA). Production and imports of investment goods (% YoY).

15 20 25 Imports of capital goods (August )

15 2

5 10 Industrial Production (August) 7.0 5.7

5

5 10

8.0 15.2

10
5

S i T

20
15
10

5 2010 2011 2012 2013 2014 2015 2016 2017 Investment goods production (August)

20
15

10 2006 2008 2010 2012 2014 2016 Services Turnover (August)

Construction activity indicator and cement sales (% YoY, 3m MA ). Gross fixed capital formation (% YoY).

10 30 Cement (RHS)

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

5
5
10
10

20 Cement (RHS)

September 2016 2016 2016 2017 2017 GFCF

2.2
0.1

5.2 9.6 10.3 Of which: Transportation 3 4 0 6 14 6 10 6 33 1

20
15
10
40
30
20

Construction (LHS)

August equipment 3.4 0.6 14.6 10.6 33.1 Machinery & equipment

2.4

7.0 12.3 17.6 12.7 Construction

3.9
3.4

1.5 8.6 9.5

4

Sources: INE, GPEARI, European Commission, NB Economic Research.

25
50

2011 2012 2013 2014 2015 2016 2017

Intelectual property

0.3
1.8

1.4 0.3

2.3

SLIDE 6

Goods and Services exports (% YoY 3m MA). Exports of tourism services(% YoY nominal growth).

Strong growth in exports of tourism services is giving a significant contribution to economic activity.

15 4 21.0

Goods and Services exports (% YoY, 3m MA). Exports of tourism services(% YoY, nominal growth).

20 30 Goods (August)

1st Semester 2017 15.4 7.1 5.9 0 1 7.6 10.9 0 5 10.0 7.2 5.6 7.5 12.4 10.210.7

10

10 Services (August)

13.4% 8.1%

0.5
4.0

0.1 0.5

7.2

2000 2002 2004 2006 2008 2010 2012 2014 2016

30
20

10 2006 2008 2010 2012 2014 2016 ( g )

2000 2002 2004 2006 2008 2010 2012 2014 2016

Tourists arrivals, by plane (% YoY, 3m MA). Current and Capital Account Balance (% GDP, data for year ending in each quarter).

20 25

2 4 1%

5 10 15 20

4
2

2 1%

15
10
5
12
10
8
6

5

Sources: INE, Bank of Portugal, NB Economic Research.

20

2006 2008 2010 2012 2014 2016

14

2000 2002 2004 2006 2008 2010 2012 2014 2016

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Contributions to exports growth have been broad-based, both in terms of geography and sector of activity.

Top 5 goods exports (Jan August 2017 % of Portuguese merchandise exports to selected countries. Top 5 goods exports (Jan-August 2017, % of total).

Weight merchandise exports, % Growth merchandise exports, %

Transportation Vehicles

11.3

Machinery and electrical equipment Common Metals Mineral Fuels

Brazil Angola China 1.4 3.3 1 5

(1.1) (2.5) (1.3)

51.0 44.4 29 7

7 3 7.8 9.2

Mineral Fuels Agriculture

China USA Morocco P l d 1.5 5.3 1.4 1 2

(1.3) (1.4) (4.8) (1 2)

29.7 22.9 13.5 12 4

6.4 7.3

Poland Japan Spain 1.2 0.3 25.3

(1.2) (26.3) (0.3)

12.4 9.3 7.2

Top 5 services exports (Jan-August 2017, % of total).

Travel and Tourism Transportation Other Business Services

14.4 21.6 50.7

France Germany UK 12.5 11.4 6.7

(13.0) (12.0) (7.2)

7.2 5.5 4.6

Telecommunications, computer and information Maintenance and repair services

Growth Jan-August 2017/16 Weight Jan-August 2017 ( ) Jan-August 2016 1.8 4.8

Mozambique 0.3

(0.5)

19.5

Sources: INE, NB Research.

6

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Contributions to exports growth have been broad-based, both in terms of geography and sector of activity.

Main contributions to merchandise exports growth, b t ( ) Main contributions to merchandise exports growth, b t ( )

2.35

1.89

by country (p.p.) by sector (p.p.)

Jan-August 2017 Jan-August 2017

1.41 1.30 1.20 1.06 0.62 0.61 0.53 0.49 0.38

1.12 1.10 0.93 0.70 0.66 0.54 0.54 0.39 0.33

Mineral Fuels Machinery and electrical equipment Common Metals Agriculture Transportation Vehicles Plastics Machinery and mechanical appliances Optical and Precision Instruments Chemicals Food and Drinks

Spain Angola USA France Netherlands Germany Brazil Italy China United Kingdom

9.0 3.66

C F

Main contributions to services exports growth, by sector (p.p.) Main contributions to merchandise imports growth, by sector (p.p.)

Jan-August 2017 Jan-August 2017

3.3 0.4 0.4 0.3 0.3 0.2 0.1 0.0 0.0

0.1

0 8 1.88 1.35 1.64 1.30 1.30 0.77 0.51 0.37 0.16

0.8

ravel and T

urism

Transportation enance and repair services communications,

mputer and

… alties and license fees

nal, cultural and

eational services

rmation resource

rials services … nce and pensions services ernment services struction services Financial services usiness Services Mineral Fuels Common Metals achinery and rical equipment Transportation Vehicles chinery and nical appliances Agriculture Chemicals Plastics

od and Drinks

Miscellaneous ished Products

7

Sources: INE, Bank of Portugal, NB Economic Research.

Tr Mainte T ele co Roya Perso recre Transfo mater Insuran Gove Cons F Other B C Ma electr Mac mechan Fo M Fin

SLIDE 9

INE house price index (market prices 2010=100 and % YoY)

The housing market is benefiting from stronger tourism activity and from stronger non-resident demand.

Number of housing transactions (thousands and % YoY).

30 35

INE house price index (market prices, 2010 100 and % YoY). Number of housing transactions (thousands and % YoY).

Q2 2017

115 120 Q2 2017:

8%

15 20 25 Existing (18.3% YoY) 100 105 110 5 10 2009 2010 2011 2012 2013 2014 2015 2016 2017 New (5.5% YoY) 85 90 95 2009 2010 2011 2012 2013 2014 2015 2016 2017

Number and growth of local lodging establishments (%). Interest rate in mortgage loans (%).

2016

7 P t l

3686 until 2015 +106%

3 4 5 6 Portugal Euro Area

3490 89 232 49 379 +58% +48% +64%

1 1 2 Euribor 6M

0.27

1.87 1.59

8

Sources: INE, Bank of Portugal, NB Economic Research.

402 103 589 Apartment Accommodation Establishment Hostel Villa +58% +48% +64%

1

2005 2007 2009 2011 2013 2015 2017

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Household indebtedness (% GDP) Non-financial corporation indebtedness (% GDP)

The economic recovery is taking place while households, firms and the Government are lowering their debt levels.

Household indebtedness (% GDP). Non financial corporation indebtedness (% GDP).

100 120 Total:

Q2 2017 160 180 Q2 2017: 141.4%

40 60 80 75.3%

Consumption Housing: 54.0%

100 120 140 105.0% (non-consolidated) 20 2000 2002 2004 2006 2008 2010 2012 2014 2016 60 80 2000 2002 2004 2006 2008 2010 2012 2014 2016 (consolidated)

Public debt (% GDP).

140 130.4 Central Governmentdeposits

Budget Balance (% GDP).

80 100 120 121.1 Net Debt

6
4
2
1.4%

20 40 60

12
10
8

5 6 7 8 9 2 3 4 5 6 7 8 9 2 3 4 5 6 7

9

Sources: Bank of Portugal, NB Economic Research.

2000 2002 2004 2006 2008 2010 2012 2014 2016 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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With a brighter economic outlook and a lower budget deficit (estimated at 1.4% of GDP in 2017), Portugal was upgraded by S&P in September, from BB+ to BBB-. The improved perception of the economy from investors is being translated into lower improved perception of the economy from investors is being translated into lower sovereign yields and spreads.

PGB yields in the secondary market (%). Spread between 10-Year Government Bonds and German Bund yields (%).

400

21 23 %

250 300 350 Portugal Italy

13 15 17 19 21

2 Y

100 150 200 186 Spain Italy 157 120

5 7 9 11

10 Y

50

jan. 2015
ago. 2015 mar. 2016
ut. 2016
mai. 2017

22 Ireland

1

1 3 2010 2011 2012 2013 2014 2015 2016 2017

2.29

0.08

Latest data for July 4th.

10

Sources: Bloomberg, NB Economic Research.

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Portuguese Economy – Main economic indicators 2010-2018

Annual growth rates (%), except where indicated

2010 2011 2012 2013 2014 2015 2016 2017F 2018F GDP 1 9

1 8
4 0
1 1

0 9 1 6 1 4 2 6 2 0 GDP 1.9

1.8
4.0
1.1

0.9 1.6 1.4 2.6 2.0 Private Consumption 2.4

3.6
5.5
1.2

2.3 2.6 2.3 2.2 1.9 Public Consumption

1.3
3.8
3.3
2.0
0.5

0.8 0.5 0.5 0.7 Investment 3 4 14 0 18 1 5 1 5 1 4 6 0 6 8 4 5 1 Investment 3.4

14.0
18.1
5.1

5.1 4.6

0.6

8.4 5.1 Exports 9.5 7.0 3.4 7.0 4.3 6.1 4.4 8.8 6.4 Imports 7.8

5.8
6.3

4.7 7.8 8.2 4.5 8.7 6.6 Inflation (%) 1 4 3 7 2 8 0 3 0 3 0 5 0 6 1 4 1 4 Inflation (%) 1.4 3.7 2.8 0.3

0.3

0.5 0.6 1.4 1.4 Budget Balance (% GDP)

11.2
7.4
5.7
4.8
7.2*
4.4**
2.0***
1.4
1.0

Public Debt (% GDP) 96.2 111.4 126.2 129.0 130.6 129.0 130.4 126.0 124.1 U l t (% L b F )1 10 8 12 7 16 2

* Excluding one-off operations (e g Recapitalisation of Novo Banco (EUR 4 9 bn) SOE financing BPN Crédito write-offs tax credits to investment severance

Unemployment (% Labour Force)1 10.8 12.7 15.6 16.2 13.9 12.4 11.1 9.1 8.2 Current & Capital Account Balance (% GDP)

9.1
4.0

0.0 2.3 1.0 0.3 1.0 1.2 1.0

Excluding one-off operations (e.g. Recapitalisation of Novo Banco (EUR 4.9 bn), SOE financing, BPN Crédito write-offs, tax credits to investment , severance payments to public sector workers), the deficit in 2014 stood at 3.6% of GDP. ** Excluding one-offs (e.g. recapitalisation of Banif), the deficit reached 3.2% of GDP. *** Includes one-off measures. F: Forecast. Sources: INE, Bank of Portugal, NB Economic Research.

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