ACCIONA, S.A. AND SUBSIDIARIES (Consolidated Group ...

However, the fall in growth has been slight, and in countries such as Chile or Peru there
is some debate as to whether the drop in domestic demand will be enough to lead
inflation to return to levels close to central bank targets. Also, CAPEX continues to rise,
based in part on foreign investment (Chile, Colombia, Peru) which, combined with
expectations of more dynamic public spending (Brazil, Colombia, Peru) makes it likely
that domestic demand will continue to show solid growth and bolster economic activity
as a whole. The situation, therefore, is very sound in the region (with the exception of
Venezuela), and points towards continued growth in Latin America even if the world
economy as a whole were to deteriorate even further.
Euro zone
In contrast, consumer and employer confidence in the euro zone remains low as a result
of the major uncertainty, which has caused spending decisions to be put on hold. The
main problem lies in the absence of solutions to the sovereign debt crisis in the area. In
January negotiations concerning the fiscal accord initiated at the December summit
progressed slowly. The momentary reactivation of the sovereign debt market does not
clear up the underlying doubt, namely whether or not the euro zone states will be able to
consolidate their public accounts against a backdrop of lower growth or even recession,
since the additional spending cuts announced in countries such as Italy and Spain,
among others, could have an adverse effect on economic activity and trigger a
downward spiral effect. Furthermore, the need to recapitalise the European banking
system in this economic context could prolong the credit restrictions for the private
sector and make it more difficult to overcome the crisis. All this places the euro zone in
a very difficult situation that must be tackled by political leaders.
The euro zone economy stagnated in the third quarter and entered a period of recession
in the fourth, in both central Europe and the peripheral euro zone countries, albeit with
significant differences between the two groups. The projections point towards a
recession of around one-half of a percentage point in 2012 and a slight recovery in
2013. The measures agreed upon at Europe-wide level in December were not sufficient
to mitigate the financial crisis, which led to a very marked dip in confidence and a sharp
increase in sovereign debt financing costs. This has been accompanied by fiscal
consolidation plans for 2012 and 2013, which has significantly undermined consumer
spending. Also, restrictions on the price and amount of sovereign debt financing have
been relayed to the private sector, which will have a major effect on economic activity.
This drop in activity will contribute to a progressive deterioration of the labour market
and higher unemployment. However, the differences in these imbalances from one
country to the next in the euro zone will lead to widely varying growth rates.
Spain
The Spanish economic situation will be strongly conditioned by the adoption of
budgetary measures of major importance aimed at reducing the budget deficit from
around 8% in 2011, per the latest estimate furnished by the Government, to 4.4% of
GDP in 2012 and to 3% in 2013. With this in mind, combined with the measures
approved by the Spanish Cabinet on 30 December 2011, it is planned to adopt other
additional measures required to achieve the budget deficit reduction targets. Against this
backdrop, the Bank of Spain predicts a drop of 1.5% in Spanish GDP in 2012 and a
modest recovery of 0.2% in 2013.
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