The latest interest rate increases, unlike what happened in 2008, are causing a rapid reduction in private sector debt. The low interest in getting stuck with more expensive credit and the use of savings stashed during the pandemic to pay off debt caused a great deleveraging among companies and individuals last year. According to data published today by the Bank of Spain, both groups reduced their liabilities by 30.2 billion euros last year, to 1.63 billion euros.
In just one year, the debt of companies and households has gone from equivalent to 123.4% of GDP to 111.6%. In the first case it fell by 11.9 billion, to 64.7% of national wealth, compared to 71.2% a year before, while in that of households the reduction was 18.3 billion euros. It fell from 52.3% of GDP to 46.9%.
The current debt-to-GDP ratio of 111% is the lowest since March 2002. Companies now owe €958.4 billion, compared to households’ €685.4 billion. The cause of the consolidation, indicates the Bank of Spain, is found in the decrease in debt operations.
The situation of the homes deserves special mention. Its financial wealth, which is obtained by subtracting debt from its assets, stood at 2.08 trillion euros last year, which represented an increase of 9.3% in just one year and a historical maximum in terms of absolute value. .
Statistics have already been showing this trend in recent months. The subscription of mortgages falls by double digits due to the increase in credit prices and, at the same time, many households have responded to the rise in rates by paying off part of their mortgage. The result is, among other things, the lowest mortgage debt in nearly twenty years, since 2006.
Last year, household financial assets reached a value of 2.8 trillion euros, 6% more than a year before. The revaluation, also largely motivated by increases in interest rates, was 119.8 billion euros, to which was added the investment in new assets for an amount of 39.3 billion. Investment funds were, along with stock market shares, the assets of individuals that increased their profitability the most.
38% of household assets are in cash and deposits, compared to 30% in shares in the capital of companies, 15% in investment funds and 13% in insurance and pension funds.
