Yesterday the Bank of Spain presented the latest figures on the Spanish economy’s international investment and external debt positions relative to H2. The economy’s net debtor position in international investment (PII) rose by 44.7 billion euros from a year earlier.
In GDP terms, the debit balance of the net PII rose 2.3 points to 86.2% in the first half of the year, despite the increase in the product. In the end, the breakdown of the debit balance shows that the rise in the first half of the year was the result of an increase in the debtor position of the Bank of Spain, the non-financial private sector and to a lesser degree of the Public Administrations. In this way, they compensated for the rise in the credit balance recorded by financial institutions other than the central bank. Excluding the Bank of Spain, the debit balance of the net PII in relation to GDP would have decreased by 1 point to 68.2%.
The ECB’s asset purchasing policy explains the strong rise in the Bank of Spain’s net debtor position, which stood at 6.5% of GDP in the period under review. The high amount of liquidity generated by this measure has generated an excess of liquidity within the Monetary Union, leading to significant financial flows between countries. Spain has seen a continued deleveraging process in the private sector, especially in the case of households and credit institutions, which has been more than offset by the rise in the Bank of Spain’s debt.
External debt means that part of the PII’s debit position which generates payment obligations. In gross terms, the Spanish economy’s external debt rose by 1,9 points in the first half of the year to 168.8% of GDP. And once again the rise in the Bank of Spain’s external debt (3,6 points to 38.2% of GDP) was bigger than the decline registered by the rest of the sectors. Specifically, the gross external debt of financial institutions other than the Bank of Spain fell by 1,3 points to 35.1% over the period.
In its note published yesterday, the Bank of Spain reaches the conclusion that the PII’s high debtor position brings with it an element of vulnerability: in as much as the massive refinancing needs it generates means the Spanish economy is extremely sensitive to financing conditions in the international markets. All the sectors in the Spanish economy should contribute to improving competitiveness and efficiency, at the same time as cutting their debt. The Spanish banks are doing just that.