The difficult triangle of debt, investment and
savings
The above arguments and figures have certainly helped
to improve impressions of Spain’s economy abroa
Spain’s rating on the European Commission’s Economic
Confidence Indicator is at its highest since August 2007,
and the OECD’s synthetic indicator of growth expec-
tations puts Spain near the top of the table of its 38
member countries. Consumer confidence indicators
also improved considerably in 2013, which could be
signalling a positive change in the trend for domestic
consumer deman
The rate of decline in household and company indebt-
edness continued to accelerate in 2013, having fallen
by €250 billion since 2010. Short and long-term loans
to Spanish households fell by 10.5% between the end of
2008 and the second quarter of 2013 (€96 billion). This
is a decline from 84% to 80% of GDP. Corporate indebt-
edness has fallen by 12.5% since year-end 2010 (down
€188 billion). This represents a decline from 144% of GDP
in 2010 to 129% at the end of the second quarter of 2013.
However, the increase in public-sector debt has resulted
in Spain’s overall debt remaining practically constant
over recent years.
Although private debt reduction is underway and accel-
erating, it will need to continue for a while yet. Mean-
while, bad debts are continuing to increase and incomes
are falling. Disposable household income fell by 1.2%
in the first half of 2013 compared to 2012 (-3.4% in real
terms) with consumption down evenmore starkly, falling
2.5%. This combination partially explains the slight
rebound in the household savings ratio in the second
quarter of 2013. Over the last four quarters (to 2Q 2013),
the household savings ratio stood at 11% of disposable
income, around two points above the lowest level since
2000, which occurred in 2011, but almost 8 points below
the 2009 peak, when there were the first glimpses of a
frustrated economic recovery.
A return to growth would involve returning to invest-
ment in excess of 25% of GDP, but this would require
household and company savings to increase by between
6 and 9 points of GDP over the coming years.
In search of funds to rescue investment
The major challenges for generating jobs are how to
generate investment, how to finance this, and how
to ensure that new companies are involved in the
wealth-creation process in Spain, within a framework
less dependent upon the cycle and the sector than in
the past. At the start of the crisis, investment in Spain
was around 32% of GDP: today, it is around 18%. In 2006
construction accounted for 13% of GDP: today it is 5%.
Established large and medium companies are not having
many problems obtaining finance from the markets, but
they are focusing on deleveraging their balance sheets.
This is confirmed by figures for rights issues on Spanish
stock markets. The availability of finance for leading
Spanish companies with the lowest costs is best illus-
trated by the €37.5 billion they have raised on the stock
markets to October.
The challenge then is how to rekindle investment, the
real generator of jobs and consumption. The European
Commission is asking for more reform to achieve this.
Spain’s industrial output has fallen by 30% since 2008,
and reduced from 34% of GDP in 1970 to 15.9% in 2012.
Discounting investment and public-sector savings over
the coming years, the private sector will be on its own
in leading the change in the growth, investment and
financemodel Spain needs.This needs to be boosted and
sustained by a more balanced combination of domestic
and external savings. This process is underway, and some
listed small and medium-sized companies are already
showing this is possible, and that the stock market is an
effective ally on this journey.
24/07/12
24/08/12
24/09/12
24/10/12
24/11/12
24/12/12
24/01/13
24/02/13
24/03/13
24/04/13
24/05/13
24/06/13
24/07/13
24/08/13
24/09/13
24/10/13
24/11/13
24/12/13
12.000
11.000
10.000
9.000
8.000
7.000
6.000
5,25
4,25
3,25
2,25
1,25
0,25
Index points
IBEX 35
10-year Bond Risk Premium (Spain-Germany)
Risk Premium (%)
The stock market rises by over 55% following the ECB's express support for the euro
IBEX 35 and Risk Premium on spanish debt (Jul 2012 - Dec 2013)
25
The Market Environment
Annual
Report 2013
BME
1...,15,16,17,18,19,20,21,22,23,24 26,27,28,29,30,31,32,33,34,35,...236