Household debt falls to its lowest level since 1999

BarcelonaHousehold debt stood at 729 billion euros in the second quarter, 1.5% more than a year earlier, and its weight in the gross domestic product (GDP) fell to 41.9%, the lowest level since the third quarter of 1999. According to the financial accounts published by the Bank of Spain, companies also reduced the weight of their liabilities relative to the state's total wealth during this period. In this case, it stood at 1.077 trillion euros, 2% more than a year ago, but 61.9% of GDP, the lowest level since the third quarter of 2001. The fact that the wealth generated by the state has increased more than the liabilities of families and companies causes the contribution to decrease.

This downward trend was already noted in the first quarter data. All of this coincided with the increase in savings and the drop in household and corporate spending during the outbreak of the COVID pandemic in 2020, and reveals an increase in households' net financial wealth, which is obtained from assets minus liabilities. In this case, it stood at 2.8 trillion euros, 161.8% of GDP, an increase of 12.2% and an unprecedented level in absolute terms. A significant contribution to this development is "the revaluation of holdings in company capital (shares) and investment funds," highlights Josep Soler, founder and executive advisor of EFPA Spain (Spanish Association of Financial Advisors and Planners).

Regarding the evolution of financial asset balances, "a slight increase in equity holdings (shares) and investment funds is observed". Cash and bank deposits, the most widely used instruments by individuals, decreased. In any case, the sum of four quarters reflects a greater investment in household holdings in investment funds and in cash, bank deposits, insurance, and pension funds.

In cash and deposits there are 1.167 trillion euros, 3.5% more than a year earlier. These are the financial assets where families have the most resources. Their average return in August (the last month for which there is data) was 0.16%, according to Bank of Spain data. This is money that is losing value, as inflation is currently at 4.9%. In fact, "the shift from deposits to other financial assets is extremely slow," states Soler.

In any case, the data show that "the Spanish economy is deleveraging, with the exception of the public sector, which shows that it is healthier". But the other side of the coin is that the downward trend in the weight of liabilities, both on the part of households and companies, may reveal that consumption is being held back; and on the part of the latter, that investment is losing momentum," states Soler. There is also less capacity for purchasing homes and, therefore, demand for mortgages. July data reflect a year-on-year increase of 4.9% in mortgages, but a decrease of 3.5% in the country as a whole. The rise in apartment prices is reflected in the average amount lent, which was also a record, according to data from the National Statistics Institute (INE).