Macroeconomic environment

From a macroeconomic point of view, the performance of this business area is twofold due to the different evolution of, on the one hand, the economies in Europe, and, on the other, the emerging economies, such as China and Turkey.

In Europe, the most critical aspect of the year were the tensions experienced in Greece due to both the difficulties in approving the second rescue plan for the country and the political crisis that led to an unexpected change in its government. Those factors were behind the increased contagion throughout 2011. Firstly, towards other countries not subject to bailout programs, like Italy and Spain. And secondly, towards certain segments of the European financial system affected by recapitalization plans that included losses on government debt portfolios. Finally, doubts about the capacity of European governments to resolve the crisis even raised questions about the viability of the common currency. As a consequence, even core European countries with sound finances were affected by the financial tensions. The uncertainty level was such that the European governments tried to agree on a definitive framework for resolving the crisis at the European summit that took place on December 8-9, 2011. Though the steps taken have been in the right direction, the pending details are still significant. Regarding the agreements reached, the measures geared towards reinforcing fiscal harmonization were the most noteworthy, together with the partial improvements in governance mechanisms in the euro zone.

In this context, the European economy as a whole showed a weak rate of growth, standing at 1.6% (two decimal points below that recorded in 2010). However, this growth is uneven. The peripheral countries showed the greatest slowdown, while those in central Europe posted higher rates of growth. As a result, the ECB reversed the early rise in interest rates and continued with its policy of supporting liquidity.

As far as Asia is concerned, growth rates remain high, though they have been moderating as a result of the weakness of foreign demand. Nevertheless, the region’s solid economic fundamentals, the existing room for maneuver in terms of implementing stimulus policies and demand from China and India will help limit these risks. In any case, the moderation of the growth rate has helped alleviate the pressures of overheating. In this regard, inflation has begun to fall back due to the growth slowdown and the reduction in food and commodity prices. The decrease of inflation rates allowed the focus of the monetary policy to shift towards supporting growth. For the future, a certain degree of easing of the monetary policy in the Asian economies is foreseen. However, aggressive interest rate cuts are not expected, unless there is a significant deterioration of foreign perspectives.

Finally, Turkey has been exposed to periods of financial contagion from Europe, with lower capital inflows, falls in equity markets and a depreciation of the lira, forcing the Central Bank to intervene. Even so, the economy has grown strongly (8.5% in 2011) and inflation has fallen to 6.7% (8.6% in 2010), although the figure is still high.