BBVA in 2012

eliminate the risk of euro convertibility by announcing the launch of a sovereign public debtrepurchase program on the secondary market of those countries which request assistancefrom the ESM. Financial tensions have eased considerably in the latter part of 2012 thanks to theadoption of these measures. Nonetheless, these measures have not been enough to preventthe European economy from gradually slowing over the course of the year to the point ofstagnation. Overall, the GDP of the Eurozone has decreased by 0.5%, compared with the positivegrowth of 1.5% it posted in 2011.Spain has been thefocus of financialtensions, thoughimportant stepsforward havebeen takenAdvances inrecovery in theUnited StatesEmerging marketsare not immuneto the globaldeterioration, butthey continue toreport significantgrowth ratesMeanwhile, the Spanish economy has been the focus of financial tensions, at their highestin spring 2012, when spreads were at their widest, while access to wholesale funding fromthe different sectors was severely restricted. However, important steps forward have alsobeen taken. On the one hand, measures have been taken to reach fiscal targets, through acombination of tax hikes and reduced public spending. Evident progress has been made in thelatter part of 2012, though probably not sufficient to offset the accumulated deviations. Secondly,the Spanish financial restructuring map is almost complete. For that purpose, the Spanisheconomy has obtained an advantageous credit facility from the ESM, enabling it to recapitalizeinstitutions with solvency problems in stress scenarios. Critical structural reforms have alsobeen implemented, such as in the labor market, thereby increasing the growth capacity ofthe Spanish economy. Spain has also benefited from decisions taken within the Europeanframework, particularly the start-up of the ESM and the ECB’s commitment toward supportingthe financing of Spanish sovereign debt through the purchase of Spanish public debt oncethe authorities agree to request funds from the ESM. Overall, with the measures taken by theSpanish authorities and the support from Eurozone measures, there has been a partial easing offinancial tensions, despite the contraction in the economy in 2012 (-1.3%), following on growth ofa mere 0.4% the previous year.Economic recovery has continued in the United States throughout 2012, albeit at a slower pacethan that reported in similar cyclical stages in the past. In fact, although GDP has grown in theregion by just over 2%, there has been a marked slowdown in the latter part of the year. Privatedemand has remained feeble throughout the period, due to the high levels of uncertaintyabroad and also to how the question of the so-called fiscal cliff would be resolved: the automaticactivation of a tax hike and spending cuts program which might be on a sufficient scale topush the US economy into recession. However, there has been a certain degree of recovery insome sections of economic activity, such as the housing market, for example. At the same time,monetary policy has helped to keep expectations through a new quantitative easing programand the commitment toward continuing with a low interest rate scenario for the time it takes toreduce the unemployment rate.Emerging markets in both Latin America and Asia have also felt the effects of the global financialtensions and the stagnation in the European economy, even though domestic demand in thesecountries has remained sound. Exports, however, have been adversely affected. As a result,growth in Latin America has slowed to 2.8% in 2012 (due particularly to the poor performance inBrazil), while Asia (not including China) has grown a few tenths of a point below 4%.Despite the weakness shown by its main foreign market (the United States), the Mexicaneconomy has reported above-average growth rates in the region and has also outstripped itsown average for the last decade. In fact, growth has continued close to 2011 levels, at around 4%.This is largely due to sound domestic demand, underpinned by the rise in employment and theavailability of credit, but also to the greater foreign competitiveness of the Mexican economy. Asfor inflation in Mexico, although it stands above the target set by the Central Bank, this is due totemporary factors affecting the prices of certain products.In South America, growth has been hampered by Brazil, which has hovered around stagnationduring most of 2012. In most South American countries, however, growth has been even higherthan expected, despite the deterioration abroad, given that commodity prices have remainedhigh and financial tensions have eased. In this context, both consumption and investment havecontinued to be shored up by the strength of the labor and credit markets and by still expansivemonetary policies.Turkey has been affected by European tensions, not only in its financial markets, but alsofrom the knock-on effect of lack of external demand. Activity has also slowed down due to36 Executive summary