Drawing on data sources such as the Grant Thornton International Business Report (IBR), the Economist Intelligence Unit (EIU) and the International Monetary Fund (IMF), this short report considers the outlook for the economy, including the expectations of 400 businesses interviewed in Spain, and more than 12,500 globally, over the past 12 months.

1. Focus on: Spain
Grant Thornton International Business Report 2013

2. Focus on: Spain
Introduction
more than
47 million
people
GDP
Spain is an advanced economy of more
than 47 million people. In 2012, its GDP was
aproximately
approximately €1trn (US$1.35trn), making it
€1 and
the 13th largest economy in the world, trillion
the fourth largest in the eurozone. in 2012
Drawing on data sources such as the
Grant Thornton International Business Report
(IBR), the Economist Intelligence Unit (EIU) and
the International Monetary Fund (IMF), this short
report considers the outlook for the economy,
including the expectations of 400 businesses
interviewed in Spain, and more than 12,500
globally, over the past 12 months.
José María Fernández
Managing partner
Grant Thornton Spain
T +34 91 576 39 99
E josemaria.fernandez@es.gt.com
www.grantthornton.es
Fourth
largest
more than
economy
in the eurozone
47 million
people
Fourth
largest
economy
in the eurozone
GDP
aproximately
€1 trillion
in 2012
more than
47 million
people
Four
large
econom
in the euro
GDP
aproximately
€1 trillion
in 2012
Focus on: Spain 2

3. 12.2%
Focus on: Spain
11%
59.4%
6.6%
hedge funds,
and mutual funds
5.4%
5.4%
5.4%
25.9%
unemployment
Over
60
of our mem
top c
operate in fina
rate
Export destinations (2012)
16.9%
France
11% 11%
despite considerable efforts to diversify –
and a dramatic increase in exports
6.6%6.6%
following a 59.4% internal devaluation
painful
59.4%
which should see the current account 5.4%
5.4%
climb into surplus in 2013.
by Wall
special purpose vehicles
6.6%
59.4%
The Spanish economy has endured a tough few years of economic
contraction, rising government debt, harsh fiscal austerity and 12.2%
12.2%
soaring unemployment.
However there have been more
encouraging signs in recent months
including the end of the recession,
the stabilisation of the labour market,
a return to growth in the eurozone –
which remains a key export market
fund administrators,
11%
5.4%
Economy
asset managers,
12.2%
Germany
10.9%
57.4%
Italy
Portugal
7.7%
5.4%5.4%
Other
7.1%
Key Indicators
• the economy expanded by 0.1%
in Q3 from the previous quarter,
up from -0.1% in Q2 bringing a
two-year recession to and end
• exports increased by 6% in Q2 from
Q1 (9.2% year-on-year) whilst imports
climbed by 5.9% (3.1% year-on-year)
• strong merchandise trade and tourism
helped Spain record a current account
surplus of €1.4bn in the first half
of 2013, the first time this has been
achieved since records began in 1990
• merchandise export earnings rose by
9.4% in January-July compared with
a year earlier, with net foreign earnings
from tourism up by 4.7%
• the cumulative current-account surplus
in the three months to July was €6bn
or 0.6% of GDP
• the unemployment rate stood at 25.9%
in the third quarter, down from a
record 27.2% in the first quarter.
Import originations (2012)
11.7%
France
12.0%
6.8%
63.8%
5.7%
Germany
Italy
China
Others
Source: Economist Intelligence Unit (2013)
Focus on: Spain 3
growth
of Italian
of Italian

4. %
Focus on: Spain
1.3%
11%
in 2013
0.2%
6.6%
59.4%
5.4%
Economic outlook
forecast growth
in 2014
5.4%
Ranked in
Australia
remains a key
trade partner
General government net debt (% GDP)
Spain
Despite climbing out of recession in Q3, the Spanish economy is
expected to contract by 1.3% in 2013, returning to growth of just 0.2%
in 2014. The recovery is expected to be slow and unspectacular with
expansion of less than 1% per annum expected in the period 2015-18.
31%
1.3%
1.3%
0.2%
0.2%
60%
forecast growth
of our member firms’
in 2014
Australia25.9%
France
Spain
organisations
as recognised
by Wall Street
top clients
operate in financial services
France
110%
Spain
87%
92%
Italy
One of the
‘large six’
hedge funds,
81%
Italy
revenues of
$300m
89%
103%
France
the top 6
Italy
Any deterioration in market sentiment
Continuing fiscal austerity, the collapse
2008
in Spain or the wider eurozone
of house prices and weak domestic
is a major downside risk to this forecast.
demand continue to weigh on growth.
Some of the housing, construction,
The budget balance is forecast to shrink
62%
consumer indebtedness and banking
from -7.1% in 2013 to in major and
-6.7% in 2014 markets
imbalances have been corrected but
back within the EU target range of -3%
the outlook remains difficult. House
by 2018. Meanwhile net government debt global
Combined
prices remain 35% below their 2007 peak.
is forecast to peak at 92% of GDP in 2017.
Around 60% of the funds from the 2012
The unemployment rate is expected to
banking sector bailout remain unused
remain elevated over the forecast period,
2013
and government borrowing rates have
peaking at 26% in 2014 before dropping
dropped in recent months so the hope
slowly to reach 22% by 2018.
in financial
is that
Recent strong export performance is servicesthe economy can avoid a sovereign
2012
bailout and the accompanying tough
expected to drive growth, with the current
fiscal measures.
account forecast to move into surplus in
2013 and average 1% of GDP in the
global accountancy
short to medium-term.
Economy expected
The share of merchandise exports to
2018
to contract by
the EU fell to 63% in 2012, down from
Providing services for
Economy expected
71% in 2008 and further diversification is
asset managers,
expected to drive export growth of 2.9%
to
fund administrators, contract by
in 2013, slowing slightly to 1.9% in 2014
in 2013
Source: International Monetary Fund (2013)
and 2015. Unemployment and austerity
special purpose vehicles
will continue to hold down imports which
and mutual
are expected to contract by 3.9% in 2013 funds
Over2013
in
and 0.5% in 2014 before returning to
forecast growth
growth of 1.8% in 2015.
countries where
in 2014
Spain
%
to contract by
12.2%
83%
120+
$1.8trn
120+
1.2 billion inhabitants and growing
400
business
our
Audit, Tax and
interviews
24% 17% gross domestic product
and Advisory
expect to countries where our
professional work together
increase
Audit, Tax and
of businesses
investment
expect revenue
to rise
Focus on: Spain 4
10.4
glob
We are
accou

5. France
Focus on: Spain
by Wall Street
Franc
asset managers,
ecognised administrators,
fund
all Street
hedge funds,
1.2 billio
and mutual funds
Over
1.2 billion inhabitants and growin
special purpose vehicles
Business growth prospects
60%
$1.8trn
top clients
Business optimism in Spain improved dramatically in Q3, climbing from -50% to
-10%. While this still means that a majority of businesses are pessimistic, this is the
most confident Spanish businesses have been since 2008.
The renewed optimism is feeding through into business growth prospects. On average
over the past 12 months, net 17% of businesses have indicated an expectation to raise
revenues, up from just 3% in 2012. Profitability expectations have averaged just net 2%
over the past 12 months but climbed to 14% in Q3, up from 8% in Q2 and 1% in Q1.
This is the highest level recorded since the same period in 2011, although it remains
well below the eurozone average (26%). Spanish expectations for investing in plant
& machinery stood at net 24% in Q3, similar to the eurozone average (25%).
0%
25.9%
400
business
Net percentage of businesses expecting an increase
(next 12 months) - Q3 2013
member firms’
interviews
revenue
increase expectrise
to
investment
17%
26%
rate
24%
25%
56%
14%
constrained by
Talent
shortage
hampers
Source: Grant Thornton IBR 2013
Revenues
24% 17%
expect to
Net percentage of businesses expecting to hire
people (next 12 months)
economic
investment
10%
Investment
Spain
Eurozone
of busines
expect reve
to rise
5%
56%
0%
constrained by
-5%
Talent
economic
uncertainty
shortage
hampers
-10%
uncertainty
Profits
growth
interviews
increase
24% 17%operate in financial services product
gross domestic
expect to
clients
unemployment
26%
400
business
of our member firms’
of businesses
financial services
Job creation tends to lag recoveries as businesses work through excess capacity and
wait for sustained levels of demand before they make long-term investments in people.
With overall and youth unemployment at record highs in Spain, there is also some
welcome news for job creation from the IBR data. Hiring expectations climbed into
positive territory in Q3 following seven straight quarters of negative data. Net 3% of
businesses now plan to hire workers over the next 12 months, the highest level since
the same period in 2011.
growth
-15%
-20%
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Spain
Eurozone
Source: Grant Thornton IBR 2013
Focus on: Spain 5

6. 1.2 billion inhabitants and
Focus on: Spain
0%
Business growth constraints
400
business
With the banking system still recovering
and house prices still a third lower than
their 2007 peak, the days of easy credit are
well in the past. More than half of Spanish
business leaders cite a shortage of finance
as a constraint on growth (51%) which
is slightly above the southern Europe
average (47%) and well above that of
the wider eurozone (27%).
Despite improved export performance,
domestic demand remains weak and 48%
of business leaders cite a lack of orders/
reduced demand as constraint on their
growth plans. This factor has remained
fairly stable over the past two years but
the 2013 average (49%) is well above
that of 2011 (40%). Just over a third of
eurozone businesses (36%) cite a lack
of demand as a constraint, although this
represents a significant decline from 55%
at the height of the financial crisis in 2009.
By contrast, the proportion of
businesses citing bureaucracy (28%)
and a lack of skilled workers (10%)
are well below the eurozone averages.
The comparison with Italy, another
mber firms’
lients
ancial services
Talent
$1.8trn
Percentage of businesses citing factor as a constraint on growth
Continuing economic uncertainty is the greatest constraint on the
expansion plans of Spanish businesses. This concern was cited by
56% of business leaders in Q3, down from 67% in Q2. Elsewhere
in troubled southern Europe, businesses in Greece (82%) and Italy
(58%) are even more concerned.
interviews
struggling economy in southern Europe,
is interesting in this regard: 64% of Italian
business leaders cite regulations and red
tape as a constraint on expansion plans.
This is despite Italy having undergone a
much less painful adjustment programme,
of businesses
perhaps highlighting the advantage of
expect revenue
Spain’s relatively stable government.
24% 17% gross domestic produ
expect to
increase
investment
56%
42%
Economic uncertainty
56%
economic
27%
Shortage of finance
to rise
48%
constrained by
51%
36%
Low demand
10%
28%
35%
Bureaucracy
26%
uncertainty
Spain
Eurozone
Lack of skilled workers
shortage
hampers
growth
Focus on: Spain 6

7. Focus on: Spain
Restoring competitiveness
Percentage point difference between Spanish and Italian business expectations
A key aspect of the eurozone sovereign debt crisis has been
the inability of economies to devalue their currencies to boost
the price competitiveness of their goods and services. However,
as a consequence of severe austerity measures and low levels of
economic activity, economies such as Spain have gone through
a painful internal devaluation, lowering wages and selling prices
relative to their competitors.
Due to an increase in productivity and a
decline in wages, Spain’s unit labour costs
dropped by 2.3% in Q2-2013 compared
with the same period twelve months
previously. Since their 2009 peak, unit
labour costs have fallen by 10% in Spain.
This compares with Italy where labour
costs have risen by almost 5% over the
same period.
Falling wages have given businesses
the space to lower prices. Over the past
four years a majority of Spanish businesses
have indicated plans to reduce selling
prices. Across 2013, net -11% have
indicated an expectation to cut prices.
This compares to 11% across the eurozone
and 14% in Italy, giving a significant
boost to the competitiveness of Spanish
output both at home and abroad.
The consequences of this approach
are broadly positive in terms of the
external sector. The number of exporting
businesses in Spain has increased by 28%
since 2007. Merchandise exports are up
by 20%, with a greater share going outside
the EU. The IBR highlights this increasing
confidence: net 39% of Spanish businesses
expect to increase exports over the
next 12 months, compared to 26% in
Italy and across the eurozone.
The downside of the internal
devaluation in Spain has been felt
domestically. Over the past 12 months,
18% of businesses in Spain have shed
workers – an unhappy trend that has
continued since 2009. Over the same
period, 4% of businesses in Italy have
hired workers, rising to 10% across the
eurozone. Tellingly, the unemployment
rate is now touching 27% in Spain –
more than double the rate in Italy.
This rises to 57% of young people in
Spain, considerably higher than the
rate in Italy (40%).
Falling wages and rising unemployment
have reduced the amount of money
Spanish people have to spend. The
resulting decline in demand for imports
has improved the current account balance,
but private consumption is expected to
decline by 2.9% in 2013. Levels of
consumption are expected to pick up
thereafter but are still expected to be
3.5% lower in 2018 compared with 2010.
25%
Exports
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
Prices
-25%
2007 2008 2009 2010 2011
2012 2013
Net percentage of businesses reporting an increase in people (last 12 months)
-18%
4%
Spain
10%
Italy
Eurozone
Source: Grant Thornton IBR 2013
Focus on: Spain 7

8. IBR 2013 methodology
The Grant Thornton International Business Report (IBR) is the leading mid-market business survey in the
world, interviewing approximately 3,300 senior executives every quarter in listed and privately-held businesses
all over the world. Launched in 1992 in nine European countries, the report now surveys more than 12,500
businesses leaders in 45 economies on an annual basis, providing insights on the economic and commercial
issues affecting companies globally.
The data in this report are drawn from interviews with chief executive officers, managing directors,
chairmen and other senior decision-makers from all industry sectors in businesses with 100-499 employees.
Q3 data is drawn from 3,300 interviews globally (100 in Spain) conducted in September 2013. 2013 data is
drawn from over 12,500 interviews (400 in Spain) conducted between November 2012 and September 2013.
To find out more about IBR, please visit: www.internationalbusinessreport.com.
Dominic King
Grant Thornton International Ltd
Global research manager
T +44 (0)207 391 9537
E dominic.king@gti.gt.com
Maria Ruiz
Grant Thornton Spain
Communications, Marketing and BD Director
T +34 91 576 39 99
E maria.ruiz@es.gt.com
© 2013 Grant Thornton International Ltd.
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