Alejandra Olcese

Updated Wednesday, January 31, 2024-11:00

  • Interview "In the EU, inflation will fall in 2024, but in Spain not because of salaries"

The improvement in

family income

in nominal terms - that is, the increase in salaries and pensions in parallel with the increase in inflation - has allowed them to reduce their level of

debt

to

76.6%

,

their lowest level. since 2002,

according to data updated at the end of the third quarter of 2023 published this Wednesday by the Bank of Spain.

The debt ratio - which measures what debt represents over equity - has thus fallen

from 91.5%

at the beginning of 2021 to 76.6%, a percentage that is also

much lower than the average for the European Union,

89%, something that the Bank of Spain explains by "the effect of rising inflation on nominal incomes."

This improvement in income - which does not have to lead to an increase in purchasing power, since it has been similar or lower than inflation - has had a "mitigating effect" and "would have contained the increase in the percentage of

indebted households that are vulnerable

(approximated as those indebted families that dedicate more than 40% of their income to debt service) associated with the accumulated increase in interest rates.

According to estimates made with the 2020 Family Financial Survey,

11.2% of households

allocate more than

40% of their income to paying debts

, compared to 10.5% in 2020; an increase that would have been much higher if it had not been for the increase in rents.

This improvement in salaries and pensions has allowed Spanish families to once again

increase their consumption

, hence their

savings rate

was cut in the third quarter of 2023 to

9.1%

. Although it is a lower level than in previous quarters due to the increase in spending in summer, it is still above the average of recent years (8.9%) and is higher than that of the last comparable period prior to the pandemic (the third quarter of 2019, when the savings rate stood at 6.3%).

The Bank of Spain has also detected an

improvement in the

gross wealth of households, due to the acquisition of new assets or the revaluation of those they already own. Given the weight that real estate has in the assets of Spaniards, it had a lot to do with the fact that

housing prices rose by 4.5%

in the third quarter of 2023 - with an 11% increase in new housing, the largest increase in the last 16 years, and 3.2% in second-hand. In fact, this revaluation is the main reason for the increase in household wealth.

Although in general terms the debt ratio decreased, the

increase in interest rates

promoted by the European Central Bank has increased the net financial burden ratio for interest by 0.6 points, to 1.9% of income available gross amount, although the supervisor considers that no additional increases will occur.

"Households in debt at a variable rate and those that have recently taken out loans have faced higher interest expenses. The average cost of household bank debt rose to 4.6% in November 2023, up from 2 .3% in December 2021. Under current market expectations,

the transmission of monetary policy

to interest payments on outstanding loans

would have been practically completed

. Only 7% of the outstanding balance of variable rate mortgages would be exposed to an increase of more than 100 basis points or more between December 2023 and March 2024. On the other hand, almost 10% of this mortgage segment would see its cost reduced by at least 50 points in the same period," they point out.

Corporate debt

The

Report on the financial situation of households and companies

shows that not only has the debt ratio of households decreased, but that of companies - which measures what debt represents over current results - has been reduced in all the branches of activity.

"The aggregate data for the sector show a similar behavior, with the aggregate debt-to-GDP ratio in the third quarter of 2023 standing at 65.6%, a level not observed since 2002 and 2.5 points lower than the average of the Economic and Social Union. Monetary," they point out.

Despite this decrease, as occurred in households, the financial burden has increased due to the increase in interest rates, although the institution governed by Pablo Hernández de Cos considers that the transfer of the increase in rates to the debt burden "is very advanced".

According to the report, the situation of Spanish companies is improving. "Sales increased until September 2023, but at a more moderate pace than the previous year. Sales

margins

generally showed moderate increases and were already

at levels somewhat higher than those prior to the pandemic.

The increase in turnover and margins translated into an increase in surpluses, although their growth slowed from the second quarter onwards.

The profitability of companies has improved

in aggregate terms, with some sectoral heterogeneity, while liquidity buffers have continued to reduce ", they point out.