Published on Friday, August 18, 2023

Spain | Recovery without credit

Credit is on the decline for businesses and households alike, as interest rates continue to rise. Perhaps most notably, it is doing so while the recovery continues. The deleveraging of the Spanish economy is not just a recent trend, and is likely down to various structural factors.

Key points

  • Key points:
  • The pandemic hit the services sector particularly hard, which is the segment of the economy to which Spain is most exposed. Due to lingering uncertainty over the recovery, investment decisions may have been delayed more than in other parts of the economy.
  • There has been a change in the financing structure of households and businesses, which are now using more of their own equity to finance their projects. This change is partly the product of regulatory changes aimed at reducing risk on the balance sheets of financial institutions. However, it may also be down to the lessons learned by businesses, which have become more self-disciplined and more wary when undertaking new projects.
  • Second, there has been a shift in the pattern of growth towards sectors with lower leverage needs than in the past, or without collateral. The most obvious example of those reducing their importance on the economy and that have high leverage would be the construction trade, as services have gained share.
  • Third, the aging of the population may be reducing the demand for financing. The median age in Spain has now moved beyond 45 years. In other words, if you have decided to buy a home, you have probably done so already, so you either have a mortgage or have already paid it off.
  • Last but not least, in Spain there currently appears to be a shortage of profitable investment projects. This is important, because we are just moving out of a period of negative interest rates and high liquidity.

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