The good evolution of economic growth, with a 2.5% increase in GDP in 2023, and its consequent revitalizing effect on the labor market – the number of people working in Spain is at its highest – contributed to improving the financial situation of the Spanish households and companies in the second half of 2023, according to a report published this Wednesday by the Bank of Spain.
The text indicates that there was an increase in income, a reduction in debt, and an increase in the value of assets, and points out that the negative impact of interest rate increases on families with fewer resources was limited. “It is estimated that the accumulated increase in interest rates during this cycle would have raised the proportion of vulnerable indebted households slightly, thanks to the increase in income,” he says. In the case of companies, the favorable trend in corporate profits would also have contained the increase in the percentage of companies with high financial pressure, which would be “very moderate”, a trend that is not expected to change in 2024.
In the case of debt, the regulator states that the effect of the rise in inflation on nominal income allowed the ratio of what households owe to be reduced to 76.6% of gross disposable income in the third quarter of the year. last year, its lowest level since 2002, more than two decades ago, a figure 12 percentage points lower than the euro zone average.
The increase in financing costs also did not prevent the gross wealth of households from growing. Partly thanks to the increase in the nominal price of housing, of 4.5% in the third quarter of 2023, “in a context of shortage of supply and transfer of past increases in the cost of construction materials.”
The entity observes a recomposition of family portfolios in search of profitability, reducing their available cash and demand deposits in favor of products with higher remuneration, such as time deposits, Treasury bills – which have experienced a boom between retail investors—and investment funds.
Regarding family income, the growth in employment and wages has continued to drive it, with a year-on-year variation in the remuneration of employees of 5%, which means it is already 6% above pre-pandemic levels. In increasing employment, the Bank of Spain appreciates a growing contribution from the group of foreign workers, “in a context in which foreign residents are driving the growth of the population and the number of households in Spain.”
In this environment of strong incomes, the household savings rate fell 2.8 points in the third quarter due to the strong rebound in consumer spending, leaving it at 9.1%, still slightly above its historical average. Higher incomes have been key in containing the proportion of vulnerable indebted households—those that dedicate more than 40% of their income to debt service—despite the increase in payments suffered by those with variable-rate mortgages.
Slight increase in vulnerable families
As the Bank of Spain recalls using the Family Financial Survey, the percentage of those who allocate more than that 40% to repay debts would have increased very little, from 10.5% in 2020 to 11.2% in the third quarter of 2023. This has made it possible to keep at bay the total number of problematic loans to households on bank balance sheets (doubtful loans plus special surveillance), which even experienced a slight decrease between the first and third quarters of 2023.
The report expects relief in the interest bill paid on mortgages. “With current market expectations on interest rates, the revisions would become downward in March 2024 for annual review contracts linked to the 12-month Euribor, reductions that would be greater than 150 basis points for those updates. that take place in the last part of 2024″. And he believes that mortgages have already assumed the monetary policy of the ECB almost in its entirety. “The transmission of the higher reference interest rates to those of variable rate loans is practically complete.”
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