Economic environment

Global economic growth continued in the third quarter of 2011, thanks to the emerging countries (EAGLES), and despite the slowdown in developed economies, as shown by the latest economic data published. This has been the result of two factors: first, the efforts made at the start of the summer by European authorities have not managed to dissipate doubts about their capacity to manage the debt crisis; and second, the financial turmoil in the debt markets has had an effect on the perception of some segments of the European financial system, where it is extremely exposed to the debt of countries in difficulties.

In the United States, growth has slowed due to the sluggish recovery in employment and wages, a residential construction sector still deep in the process of correction, and the continued household deleveraging process. Despite pressure at the start of the quarter to implement a credible process of fiscal consolidation, doubts about the strength of economic activity have led to the search for a balance between long-term consolidation and the need to sustain the economy in the short term, resulting in the proposal of measures particularly geared to job creation. Meanwhile, the Fed has given signs of accompanying with an accommodative monetary policy.

Interest rates
(Quarterly averages)


3Q 2Q 1Q
4Q 3Q 2Q 1Q
Official ECB rate 1.50 1.25 1.00
1.00 1.00 1.00 1.00
Euribor 3 months 1.54 1.44 1.10
1.02 0.87 0.69 0.66
Euribor 1 year 2.00 2.13 1.74
1.52 1.40 1.25 1.22
USA Federal rates 0.25 0.25 0.25
0.25 0.25 0.25 0.25
TIIE (Mexico) 4.81 4.85 4.85
4.87 4.91 4.94 4.92

The slowdown and doubts about growth have also become consolidated in Europe. This time round, they also affect the core euro zone areas, which have shown some weakness in domestic demand, though so far this has been offset by strength in the foreign sector. The countries subject to European Union and International Monetary Fund programs continue with major adjustments (except in the case of Ireland, where the most recent figures suggest a recovery). Nevertheless, the focus of attention is still the resolution of the debt crisis, specifically the measures to take to re-channel the Greek debt to more sustainable levels. Doubts in this respect are affecting the financial system of the euro zone and leading to funding difficulties in the wholesale markets. The resurgence of tension has led to a change in the prospects of a gradual toughening of monetary policy by the European Central Bank (ECB). In fact, the ECB has interrupted its cycle of interest-rate hikes and appears prepared to continue with measures that support liquidity.

In Spain, the adjustment process continues and the economy has slowed slightly. Even so, the strength of the foreign sector has offset the weakness of domestic demand. At the same time, the public administration continues to be immersed in a major process of fiscal consolidation.

Despite the slowdown in advanced economies, emerging economies continue to grow solidly towards more sustainable levels. In Mexico, the most important indicators (industrial activity, formal employment, retail sales) remain positive, so the rate of growth could have continued in the third quarter at levels that are even slightly higher than the previous quarter. Inflation is not a concern, given the domestic environment of contained activity and moderate prospects of global growth. Monetary policy is therefore responding by a longer pause, and the lending rate will remain at 4.5% beyond 2012. The uncertainty is if anything biased towards a drop in the lending rate at the end of 2011 if the economic environment worsens.

Growth continues to be very strong in South America, where it is sustained by domestic demand and support from what is still a lax fiscal policy. Despite the slowdown in advanced economies, commodity prices remain high, which explains the strength of income.

The Chinese economy still appears sound. Although the region is already noting the effects of the slowdown caused by the greater weakness of foreign demand, most recent economic data have remained solid. Strong underlying domestic demand and what is still a high inflation rate will probably prevent the application of a policy of monetary easing, although the authorities are prepared to act (in the fiscal area as well) if the global weakness persists.

Finally, the Turkish economy is growing at a strong rate, although inflation is still relatively high due to the major drop in value of the Turkish lira in an environment of high global risk aversion, which has in general affected the Turkish financial markets. In any event, the Central Bank’s tone shows it is clearly committed to an accommodative monetary policy.

In terms of exchange rates evolution, the final rates of the Mexican peso have depreciated notably, in both year-on-year and particularly quarter-on-quarter terms. This is the currency with the biggest influence on the Group’s financial statements. The Chilean and Colombian peso have followed suit, although to a lesser extent. In contrast, the final rate of the US dollar appreciated in year-on-year, and particularly quarter-on-quarter terms. This is the second most important currency for the Group’s results. The rest of the other important currencies in Latin America have also gained. The exception is the year-on-year depreciation of the Argentinean peso. Overall, the impact on both the balance sheet and business activity over the last year and in the quarter is negative. The same is true for earnings in quarterly and year-on-year terms.

Exchange rates
(Expressed in currency/euro)

Year-end exhange rates
Average exhange rates

30-09-11 ∆% on
∆% on
∆% on

January–Sep. 11 ∆% on
January-Sep. 11
Mexican peso 18.5936 (7.9) (8.7) (11.0)
16.9273 (1.3)
U.S. dollar 1.3503 1.1 7.0 (1.0)
1.4065 (6.5)
Argentinean peso 5.6773 (3.2) 4.6 (3.4)
5.7510 (9.7)
Chilean peso 695.41 (4.8) (2.1) (10.1)
666.67 2.5
Colombian peso 2.583.98 (4.9) (0.5) (1.0)
2.564.10 (2.0)
Peruvian new sol 3.7451 1.6 6.1 0.2
3.8930 (4.4)
Venezuelan bolivar fuerte 5.7991 1.1 7.0 (1.0)
6.0403 (8.1)
Turkish lira 2.5100 (21.1) (6.4) (17.6)
2.2920 (12.8)
Chinese yuan 8.6207 5.9 8.4 2.3
9.1378 (2.1)