The worst economic data caused by the coronavirus crisis are yet to be seen in the second quarter of the year, however, progress in the reopening -especially in terms of tourism-, references such as PMIs or managers’ expectations surveys of purchase, and the reversal of the pandemic make that right now the recovery is closer to taking place in ‘V’ than in ‘U’, with all caution. In the opinion of Rosa Duce, chief economist for Spain at Deutsche Bank, “historic” stimuli such as those being endorsed by European governments as a whole (equivalent to 30% of Community GDP) show that we have learned from the financial crisis. In his interview with Information It does, however, emphasize that public bailouts of large companies by European governments they must last for the duration of this “exceptionality”.What are your economic prospects in the short and medium term? Have they changed with the data you have to date?We started with pessimistic forecasts but with a risk scenario that we did not think we were going to touch. Then, at the beginning of May, looking at the data for March and April, we put ourselves in the initial risk scenario, that is, with very pronounced falls. And now, we move between the risk scenario and the initial baseline scenario. We would be talking about that for the European Union and the euro area, for example, we would have a fall of 7 and 9%, and in the case for Spain, between 12 and 15% which would be the worst case scenario. It is true that the data lately is being better than expected and that has allowed the perspectives to have improved a little, but even so, we still think that the impact [de la crisis del coronavirus] It will be very strong.Have they improved enough to contemplate a recovery in ‘V’?The problem is that the peak of the ‘V’ is clear to us. The second trimester is going to be very bad, very negative because activity already fell sharply in the first quarter and we had only been confined for 15 days. Considering that the month of April practically everyone has been confined and the first opening measures have been generally in mid-May, very strong falls are expected in the second quarter. The key is recovery. And it is true that in recent weeks we are seeing how the pandemic is evolving somewhat better and, for example, the tourism sector, which is a key sector especially for Spain, could officially start to rebound this summer, which seemed impossible a month ago.Recovery in ‘V’? I hope so. I think right now we are closer to this than to the ‘U’ that we saw before, but we still have to wait to see because we have been few days with few affected. It seems that borders are being opened and that from July there should be a certain normality in the tourism sectorBut it is true that trust will also be required. The airlines can open, the hotels may open, everything can open, but in the end consumers are still a little fearful and that means that consumption is still late to recover.How do you rate de-escalation measures in Spain in relation to those in other countries?I think that in the end all the countries move to the sound of the pandemic data. The clearest case is Germany: a month ago he spoke that the Germans were not going to be able to leave their country or were only going to move around the surrounding countries, and now the Government is saying that from June 15 they are going to being able to move around the European Union. Just look at the flight and ferry bookings to the Balearic and Canary Islands, which are seeing a significant rebound. We are all moving in an uncertain scenario and, fortunately, what we are seeing is that all governments are moving towards a quicker outright than we initially thought.The Ministry of Economic Affairs ensures that there are already certain indicators of improvement in the economy. Are these green shoots visible?The actual activity data, that is, the data on retail sales, production, and exports, which are generally data from the past, continue to be negative because we are talking about data from April to May. Yes, an improvement in confidence surveys is being seen, and not only in Spain but throughout the world, especially the industrial sector and also the services sector. In this crisis what has suffered the most is the services sector because it is linked to consumption and everything that is tourism and hospitality. We saw very strong drops in confidence indicators, for example PMIs in Europe in May from unknown levels in the series. If 50 is the barrier between expansion and recession, in services we saw levels of 12 and 13. Now those indicators are rebounding. They are below 50, that is, we are still in recession levels, but it is true that they have risen quite a bit with respect to their lows. Is where we can see a some hope that confidence surveys, which implies more consumption or more production in the future, are still in recessive terrain but are recovering.Is the Recovery Fund presented by Brussels ambitious enough to mitigate the economic effects of the pandemic?I think it is very good news, what we do not know is whether it will actually be approved under these conditions, because we have some countries such as the Netherlands, Austria, Denmark or Sweden that do not agree with this idea that most of this reconstruction fund, be it through transfers and not through loans. We must wait for the Eurogroup on June 18 and 19 to see what is finally decided. If it were approved online as it is now, it would obviously be very positive for countries like Spain, who have been badly hit by the pandemic and, therefore, would receive money that they would obviously have to justify and would have to go to very defined projects, but would not imply increasing debt. So it would be positive. In any case, the measures they are taking in this crisis worldwide, in all countries -Europe and Spain included- they are historical. I think we have learned from the financial crisis And right now at the European level, if we add up everything that all countries are doing, we are talking about pmonetary and fiscal policies of 30% of GDP and in the United States, from 20. These are very important figures for economic and monetary momentum, which has allowed us to see a little light now. That and that the pandemic is getting better.And the latest decisions of the European Central Bank?The ECB surprises the market again by announcing an increase in the debt purchase program of 600,000 million euros. Our analysts really expected this increase in the buyout program to occur but not that it would come so soon. In fact they were posting the announcement in July and that it would probably start in September. This increase is justified by the fact that growth forecasts for the euro area this year are very negative. The update from the ECB this year sets the drop in activity at -8.5% and therefore believes that more monetary injection is needed and to help as much as possible so that we can get out of this recession as soon as possible. In addition to increasing volume, what the ECB does is extend this debt program until June 2021, compared to December 2020 as it said initially. Furthermore, all debt maturities will continue to be reinvested until at least the end of 2022.It is very good news, the market has taken it very well. It is true that initially we saw a certain correction, but investors have returned to buy, especially the banking sector, which is the most favored, taking into account that peripheral risk premiums have fallen sharply. We think it is one more step towards these stimulus measures that not only will the ECB approve, we also hope that the Fed – Powell has already said – can do so at any other time. Although it is true that the evolution of the pandemic is better than expected and it seems that the economies may reopen, the economic damage has been very strong and this type of liquidity injections will continue to be necessary to favor credit and for the economy to recover as soon as possible.Do you consider additional measures by the issuer to recapitalize banks?The truth is that not right now. The European financial sector, after what happened in the financial crisis, it is a sector that is very well capitalized. To date, all banks have been passing all the stress tests of the European Central Bank, they have an overcapital and therefore they do not have a solvency problem. What they have, like most of the world banks, but especially in Europe because our rates are at -0.5%, is a problem of profitability. European banks right now have many costs derived from increasing regulation, they also have to bet on digitization -and that implies investments-, and its traditional business, which is the interest margin spread business, gives practically no profitability. Excess liquidity for banks penalizes and the rates at which it can actually be lent are very low. Therefore, the interest margin is very low. If we add that this crisis is going to increase the number of provisions, what we are seeing when the results of the banking sector in Spain and throughout Europe have been published, is that the sector does not have any solvency problem, it is very well capitalized, but it has a profitability problem because in addition these interest rates are going to stay very low for a long time.What do you think of the debate that is being generated in Europe about the government bailout of large companies?I believe that what this crisis has shown is that central banks and governments are trying to do everything possible to try to make the base of that recovery be in ‘V’, that the crisis lasts as little as possible. This at the end it is an external shock and therefore has nothing to do with the fact that there was an oversupplya, as has happened in other recessions, or a financial crisis. In this case, what has happened is that we have an external shock that has hit demand. So they have to try not to push that demand to leading companies or banks, to the financial sector. In fact, all the fight that both governments and central banks are doing is to prevent the economic crisis from turning into a financial crisis or a debt crisis, as we had the year 2012-2013. Given the risk that large companies could be bankrupt, such as the case of an airline a month or so ago – when it was seen that the horizon for the sector was very black – some European government has decided to enter the shareholding to avoid bankruptcy. I think this is going to be less and less, because fortunately it seems that tourism reopens, it seems that the airlines are going to fly again. In fact, Iberia has already announced that it begins to fly from July 1 … I believe that these measures are exceptional, that they are taken in an exceptional situation and, therefore, they must last for the duration of this exceptional nature..What are your expectations regarding the oil market? What do you expect from the next OPEC meeting?Oil prices had their worst moment in late April, shortly before the May futures contract expired. From there it has started to rise for various reasons. The fall in May was a consequence of the advance sale. In June [futuros] what has been done is to take them further, they have moved towards the end of the year to avoid moments of crisis such as those that occurred in late April. If not all of them expire in June, because they have been carried forward with the prospect that oil could rise, this has allowed prices to lighten a little. The second factor, and the most important, is that demand begins to improve and, therefore, expectations that the economies will reopen earlier and oil may begin to rise. And the third factor is that the producing countries are greatly reducing the supply of oil to try to balance the market. It is true that there are dissents among producers right now, because it seems that Russia does not agree very much on continuing to maintain these production cuts. Arabia is trying to keep production cuts down and even lower them further. What we are seeing in this market is a lot of controversy, because the producers of the United States, those of ‘fracking’ (hydraulic fracturing) are starting to produce again. And what Russia is basically saying is: “if we cut back and in the United States they go back to producing without having any kind of control, in the end we suffer and the price will fall again.” There is a lot of uncertainty. Now it seems that we have achieved a certain balance. Warehouses are still full, but not entirely, producers are lowering production, demand is rising and oil has recovered. We don’t see much recovery margin beyond $ 40 because the world economy is going to remain very weak, but it is true that one of the risks on the market is that again the producers have a problem of agreement, as happened to us in February, and we have a little uncertainty in the market. What we believe is that in the end they know that they have to keep a price at these levels and that producing more would imply a return or a further collapse and that there will be some kind of understanding.What other risks worry you? Can the scuffle between the US and China further destabilize the situation?The truth is that the market has run a lot since the March lows and it is at levels that, obviously, are not expensive by valuation, but have risen very quickly and there are still underlying factors that can generate some volatility. The main one is for the pandemic to return. If it returns and we have to confine ourselves again, it would be the auction to the world economy. Fortunately, it does not seem that it will happen or if it does, it seems that all the vaccines, treatments are progressing a lot and there we would have a risk, but we believe that it is getting lower. The second risk is the tensions between the US and China. It is something that we saw last year that had a great impact on growth. Some European economies suffered a lot, like Italy, Germany. There was an agreement at the end of December that was signed in January, but it is true that the situation between both countries it is becoming more tense and has a lot to do with the fact that there is a presidential election in November in the United States, and that both candidates are trying to use this controversy regarding China as an electoral weapon. Right now it seems like he’s forgotten a bit because in the United States they have quite serious internal problems, so it seems that the commercial issue has been in the background. But it will come back and we will see moments of volatility. We do not believe that either of them will break the deck, but it is true that all this electoral noise can generate a lot of volatility in the market and therefore, we are somewhat cautious in variable income. We believe that we will not see the lows again Because the situation is totally different and the worst has already happened in the pandemic and in the economy, but there may be moments of volatility. Temporary corrections may occur probably derived from this crisis between the United States and China. And of course, if there is no agreement, we can also see a significant turnaround on the European stock markets, but it is something that we do not handle either. We believe that in the end there will be some kind of agreement. Maybe it is not as favorable as now, but it will have a combination of transfers and loans and in the end we believe that the risk there is less.Is it time for the investor to take more risk?The problem is that the situation with respect to before the pandemic has not changed. We are in a world of very low interest rates that are going to stay that way for a long time. We already thought that before the pandemic arrived and with this what we know is that these interest rates are going to be low for longer than we thought before. Therefore, a medium and long-term investment, three to five years, there must be some investment in risky assets because if not, the return is null or negative, because the rates are at zero or –0.5% in Europe. That is why we always say that we have to have a well-diversified portfolio in the risk profile that one is willing to assume. And that is given by the fact that if when there is a correction you are at the risk level you have to be in, as we know that the corrections are temporary and then the market picks up, you should not do anything. We are at a time when we believe that to invest in the medium-long term you have to have some risk in the portfolio. For a moderate investor, we do not usually recommend that you have more than 35% in the stock market Because it is a riskier asset, but a diversified investment between fixed income and the stock market, maintaining it over time and without going in and out, is the best recommendation. Right now the market has risen, it has recovered a lot and therefore, the people who knew how to hold on and knew not to fall into the seller’s panic when it began to fall day after day, have now seen how in the end the market always ends up recovering and how in long-term investments it is better to do nothing.What are your prospects for the Spanish stock market?The problem is that the Spanish stock market is not a reflection of the Spanish economy. It is a market in which the financial sector is basically very overweight, then we have electricity companies and little else, Telefónica and Repsol. The industrial fabric, the number of small companies, is not reflected. The Spanish economy may rebound and the stock market does not have to. With these prospects of low profitability in the banking sector, we believe that prices may go up because they are already at too low levels, but they will always be subject to more volatility than other types of sectors. pharmaceutical sector and technology and here in Spain we do not have as many of those sectors. So, We believe that the market is cheap and that it may have upside potential, but with great volatility. and therefore we always say the same thing: you have to have diversified and diversified portfolios worldwide.
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