January - September 2012

The economic background

In the third quarter of 2012, the world economy continued to run out of steam. This was the result of weakness that has been particularly clear in the euro zone. But it has also been apparent that the emerging economies in Asia and Latin America are not immune to the effects of the continued financial tensions in the European debt markets and have also begun a moderate slowdown. However, the authorities have reacted with the adoption of new monetary policy measures (and in the case of the euro zone, institutional measures), which should help restore market confidence in the euro zone.

The most relevant actions have taken place in Europe. Following the agreements reached at the European summit last June, major steps have been taken to strengthen the governance of the Economic and Monetary Union. The measures adopted include the implementation of the European Stability Mechanism (ESM) and progress in the process that will lead to the creation of a single European banking supervisor. But the most decisive measure has been the announcement by the ECB of a new program for unlimited purchases of sovereign debt of those countries that opt to access these funds, under strict conditionality. This initiative has contributed to ease concerns on the risk premiums of the peripheral countries and reduce tail risk. Overall, the measures explained above, in addition to those already adopted in June, represent a window of opportunity for resolving the financial crisis in Europe, although there will continue to be real risks over the coming quarters regarding their effective implementation.

In the United States, the latest data confirm fears of a more pronounced slowdown. Although some sectors have picked up their growth (for example, the residential sector), this has not been enough to offset the weakness of domestic demand as a whole, which is subject to uncertainty on the extent of the debt crisis in Europe and the implementation of automatic spending cuts. Consequently, GDP in the second quarter has grown a mere 0.3% over the previous quarter and the unemployment rate remains slightly above 8%. As a result, the Federal Reserve has pledged to keep interest rates low, at least until 2015, and has adopted a new quantitative expansion program that will remain in place until the labor market prospects improve.

Growth in South America continues to be strong, although the global slowdown has been felt, particularly in economies geared more toward exports. Even so, they are supported by strong domestic demand, partly due to high commodity prices.

Activity in Mexico remains robust, with GDP growth in the second quarter of 0.9%, supported by strong private domestic demand. According to BBVA Research, the Mexican economy could close 2012 with an average growth of around 3.7% thanks to domestic stability and external competiveness.

The available data suggest that the slowdown in China throughout this year is becoming more intense, due particularly to lower foreign demand. The authorities have announced a fiscal stimulus package based on infrastructures and housing construction. Despite not being as ambitious as that implemented in 2008-2009, it does guarantee that growth will continue at a notable pace that is consistent with official targets.

Finally, Turkey continues to be immersed in a process aimed at correcting its imbalances. The authorities have implemented reforms in an attempt to address the accumulated imbalances in the country, especially those related to high energy dependence and high inflation. Although economic activity has slowed, it has done so partly due to economic policy, particularly monetary policy. In conclusion, the growth rate of the Turkish economy is expected to speed up slightly in the remaining months of this year and in 2013.

With respect to exchange rates there was a general appreciation, both year-on-year and over the quarter, in the average rates of most of the foreign currencies that are relevant to the Bank. In terms of final exchange rates, there was a significant general appreciation, but over the quarter this was limited to the Mexican and Chilean pesos. As a result, the impact of foreign currencies on the Group’s balance sheet, activity and earnings is positive in both quarterly and year-on-year terms.

Interest rates

(Quarterly averages)

2012 2011

3Q 2Q 1Q 4Q 3Q 2Q 1Q
Official ECB rate 0.76 1.00 1.00 1.28 1.50 1.25 1.00
Euribor 3 months 0.36 0.69 1.04 1.49 1.54 1.44 1.10
Euribor 1 year 0.90 1.28 1.67 2.05 2.00 2.13 1.74
USA Federal rates 0.25 0.25 0.25 0.25 0.25 0.25 0.25
TIIE (Mexico) 4.79 4.76 4.78 4.80 4.81 4.85 4.85

Exchange rates

(Expressed in currency/euro)

Year-end exchange rates Average exchange rates

Δ % on Δ % on Δ % on
Δ % on

30-09-12 30-09-11 30-06-12 31-12-11 Jan.-Sep. 12 Jan.-Sep. 11
Mexican peso 16.6085 12.0 1.6 8.7 16.9431 (0.1)
U.S. dollar 1.2930 4.4 (2.6) 0.1 1.2810 9.8
Argentinean peso 6.0661 (6.4) (6.2) (8.2) 5.7164 0.6
Chilean peso 608.27 14.3 5.5 10.9 626.96 6.3
Colombian peso 2,325.58 11.1 (2.3) 8.0 2,298.85 11.5
Peruvian new sol 3.3575 11.5 (0.1) 3.9 3.4020 14.4
Venezuelan bolivar fuerte 5.5530 4.4 (2.6) 0.1 5.5012 9.8
Turkish lira 2.3203 8.2 (1.6) 5.3 2.3092 (0.7)
Chinese yuan 8.1261 6.1 (1.5) 0.4 8.1065 12.7