Spain’s private sector debt service ratio: An international comparison
Private debt
Fecha: mayo 2024
Joaquín Maudos
SEFO, Spanish and International Economic & Financial Outlook, V. 13 N.º3 (May 2024)
The rate tightening embarked on by the ECB in mid-2022, which was paused in September 2023, has had a negative impact on debt sustainability. In the case of Spain’s corporations, the interest burden doubled between 2022 and 2023, surpassing the 40 billion euros mark. The interest burden on household borrowings increased by 66% to over 24 billion euros. Looking at the share of income that has to be earmarked to interest payments, the percentage almost doubled in 2023 in the business sector (from 7% to 13%), increasing by less, and from a much lower base, in the case of the household sector (from 1.8% to 2.6%). Nevertheless, the interest burden is below the EU-27 average in the corporate segment (9% vs. 12% as of the third quarter of 2023) and very similar among households (2.4% vs. 2.5%). As well, the ultra-low rate environment until 2022 coupled with private sector deleveraging drove a drastic reduction in debt service costs (interest costs and principal repayment), which did not increase in 2023, as the spike in interest costs was offset by ongoing deleveraging. In 2023, Spain’s corporations earmarked 34.7% of their gross disposable income to debt service, while its households set aside 5.6%. These are low readings relative to international standards.