Economic activity in the United States started out soft in the first half of the year, as cuts to government spending weighed on GDP growth. Nevertheless, the steady improvement in the labor market throughout the year has led to the economy picking up during the second half of 2013 as private consumer spending increased at a faster pace and exports rose. Modest income gains and a high savings rate held back consumption, but it did pick up strongly in the fourth quarter as consumer confidence improved.
Residential activity contributed to GDP growth during the first three quarters of the year, because historically low mortgage rates supported a high pace of home sales and thus rising home prices. Furthermore, limited housing stock resulted in an improvement in new construction activity.
However, uncertainty continued to affect the economy, in particular due to doubts about how soon the authorities were going to limit the expansive tone of fiscal and monetary policies. In fiscal policy, intensive negotiations were held throughout the year aimed at bringing the deficit accumulated during the expansionary stage under control. These negotiations failed to achieve a comprehensive plan to tackle fiscal consolidation in the long term. Instead, there have been partial solutions such as tax increases and an across-the-board reduction in spending (which prevented the so-called fiscal cliff). The negotiations were also conditioned by the U.S. government’s limited capacity to increase its debt levels, causing a partial federal government shutdown in October, though this had a limited impact on economic activity.
The second source of uncertainty in 2013 came from “tapering”, i.e. the announcement by the Fed that it was considering slowing the pace of monetary expansion, as a first step towards the normalization of monetary policy, prior to a possible interest rate rise and subsequent reduction of the balance sheet. The Fed was very clear that the process would only be introduced if the economy continued on a path of sustained growth. Even so, the announcement in spring was accompanied by a strong upturn in interest rates in the United States, which partially put a halt to the strong investment in housing. Although the U.S. economy has continued to recover, in the end the start of the tapering process has been postponed until January 2014, and the Fed has been particularly careful to emphasize its intention of keeping interest rates firmly anchored at low levels until it is sure that the improvement underway is sustainable and strong.
The United States is in the early stages of a transformation of its energy sector, because the ability to tap its oil and natural gas reserves has enabled the country to become an exporter of petroleum derivative products. Thus, the U.S. is benefiting directly from the high growth levels in many emerging markets and improving economic activity in Europe.
As for exchange rate, the dollar depreciated against the euro in 2013, which had a negative impact on the Group’s financial statements in the year as a whole. To better understand the changes in the figures, the percentages given below refer to constant exchange rate, unless otherwise indicated.
As regards the country’s financial sector, banks have continued to improve their balance sheets, with a reduction in NPA rates and non-performing loans. At the same time, confidence has increased and both consumers and businesses feel comfortable and willing to take on more debt. Interest rates and lending conditions remain favorable for borrowers, while improvements in household finances are positive news for banks searching for more creditworthy customers.
To sum up, the figures confirm the improvement in the country’s banking system over the year, with a positive trend in both profits and the sector’s NPA ratio (3.8% at the close of September for commercial banks, compared with 4.7% at the close of 2012). This improvement in bank earnings continues to be supported by higher non-financial revenue (low interest rates are still having a negative effect on net interest income) and reduced needs for provisions due to the improvement of asset quality across all the portfolios. Lastly, the rate of growth of domestic deposits picked up in the second half of the year.
