Publications

Central Balance Sheet Data Office Annual and Quarterly Survey data point to a
continuation of the recovery in non-financial corporations’ activity, both in 2017 and in
the first nine months of 2018, giving rise to growth in ordinary profit and employment in
the majority of sectors and firms. As a result of the good corporate earnings performance,
rates of return rose in both periods and the spread over the cost of borrowing continued
to widen. Extraordinary costs and revenue had a negative impact on net profit in 2017;
however, in the first nine months of 2018 the impact was positive, resulting in very strong
net profit growth in the period. Average debt ratios continued to decline in 2017, while in
the first three quarters of 2018 the debt-to-asset ratio rose slightly and the debt-to-ordinary
income ratio was practically unchanged. Lastly, the debt burden ratio fell in both
periods, driven in particular by the lower cost of borrowing. The article includes two
boxes analysing the recent economic and financial performance of Spanish SMEs and
consolidated groups, respectively, on data up to 2017.

This article analyses a broad set of relevant variables for monitoring inflationary pressures in the Spanish economy. On the basis of these variables, composite indicators are calculated that proxy inflation expectations, the degree of slack in the economy and other inflation pressures, domestic and external alike. On the information analysed, the recent period of low inflation in the Spanish economy is estimated to have come about in a setting in which domestic factors particularly eased, with a notable reduction in inflation expectations.

The effect of the euro exchange rate on inflation has taken on significant importance recently, with the application of the ECB’s expansionary monetary policy measures having coincided with episodes of euro appreciation, such as that observed between the second half of 2017 and early 2018, which tend to exert downward pressure on imported prices. This article analyses the factors behind the fluctuations in the euro exchange rate against the dollar during the recent period, and finds that this appreciation may have largely been due to the higher relative growth of the euro area, compatible with a pick-up in expected euro area inflation. However, the subsequent depreciation, since February 2018, might reflect factors related to changes in the relative confidence of financial markets to the detriment of the euro, and to the lower relative growth of the euro area compared with the United States. Further, it is documented how the pass-through of exchange rate movements to overall consumer-price inflation in the Spanish economy has increased slightly in recent years, owing mainly to the energy component, while core inflation remains much less sensitive to exchange rate changes.

According to data from the Central Balance Sheet Data Office Quarterly Survey, non-financial
corporations continued to see an increase in activity, employment and ordinary profits in the first half of 2018, supporting a continued recovery in aggregate profitability levels. There was no significant change in debt ratios, while the debt burden continued to fall, reaching historic lows, indicating that financial pressure on the corporate sector is currently low. Nevertheless, the simulations included with this article reveal that certain segments of the corporate sector would be particularly vulnerable to rising borrowing costs.

According to the analysis conducted in this article, based on individual firms’ balance sheet information, Spanish corporate investment tended to pick up from 2014 and to do so with greater intensity at SMEs than at large corporations, after having contracted more forcefully during the early stages of the crisis at SMEs. In any event, as regards the stock of productive assets (tangibles and intangibles alike), the investment level attained in 2016 is expected to still be below pre-crisis figures. Analysis of investment determinants highlights the fact that the strength of the financial position and of profitability are positively related to business investment decisions, especially during the post-crisis period. As to the sources of financing used, firms with net positive investment resorted, throughout the period, both to own and borrowed funds, although the relative weight of the latter fell significantly from 2008. Firms investing intensively in intangibles – which were financed, until 2007, both with own and borrowed funds – began, with the onset of the crisis, to depend practically exclusively on own funds. That suggests the possible existence of greater difficulties for firms with a high concentration of intangible assets in gaining access to borrowed funds.

On information from the Banco de España Central Balance Sheet Data Office Quarterly Survey (CBQ), non-financial corporations continued to post increases in productive activity, employment and ordinary profits in 2018 Q1, which translated into a fresh increase in aggregate profitability levels; however, signs of some slowdown in the main ordinary operating surpluses are discernible. Debt ratios rose during the opening months of the year, but the debt burden ratio continued to fall; accordingly, overall, there were no significant changes in the degree of financial pressure on companies. The article includes a box that sets out the methodology used to obtain re-weighted rates, resulting from the application of the sectoral weight of firms in the economy as a whole to gross value added and operating income, with the aim of mitigating the sectoral bias of the CBSO samples.

The Financial Accounts of the Spanish Economy reveal that the financial position of households and non-financial corporations once again strengthened in 2017. In the case of households, bank debt stood at 61% of GDP, 3 pp down on 2016 and 24 pp below its 2010 peak. As in previous years, there was a decline in loans for house purchase, which was partly offset by the increase in consumer credit and other lending. The gross financial wealth of households continued on a rising trend, as a result both of investment in financial assets and of the revaluation of financial instruments held by households. In the case of corporations, the flow of total borrowings raised, in consolidated terms, was positive – following the virtual zero amounts of the two previous years and the negative amounts of the four preceding years – of the order of a volume equivalent to 0.8% of GDP, the highest level since 2009. In terms of outstanding balances, this debt accounted in 2017 for 78% of GDP, 5 pp down on 2016 and 39 pp below the 2010 peak. Corporations’ own funds grew by 3.2%, as a result both of the raising of funds and of the revaluation of these liabilities, as has been the case since 2015.

The trade exposure of Spanish firms to the United Kingdom is significant, albeit lower than that to the main euro area countries. In 2017 the growth in Spanish firms’ goods exports to the UK market that dated back to 2012 came to an end, against a background of sterling depreciation against the euro. The potential vulnerability of Spanish firms with a presence in the UK market to Brexit is somewhat limited by their distinctive characteristics; these companies are on average larger, more productive and more geographically diversified than those that export to the main euro area countries. In any event, the ultimate impact of this process on Spanish firms with a presence in the United Kingdom or with the potential to gain access to this market will largely depend on the terms eventually established for trade relations between the United Kingdom and the European Union.

According to the balance of payments (BoP) statistics, the Spanish economy once again became a net lender in 2017, despite the rise in oil prices and the strength of domestic demand. Factors that are foreseeably temporary, such as low interest rates, and other longterm factors, mainly relating to the increase in the number of exporting firms and the gains in competitiveness accumulated in recent years, contributed to this. The Spanish economy’s negative net International Investment Position (IIP), in terms of GDP, declined again for the third consecutive year (to 80.8%), since Spain’s lending position and the expansion of GDP offset the negative impact of valuation effects and other adjustments on the net IIP.

After two consecutive years of slowing global activity, there was a rise in world GDP growth in 2017 which was widespread across advanced and emerging market economies and was higher than expected at the start of the year. Inflation rose moderately in 2017, largely due to increases in commodity prices, but core inflation remained more stable and far from central bank targets. The outlook for 2018 indicates that these global trends will continue. Some of the factors that will influence these developments are analysed in detail in this article. First, several factors (the cyclical recovery, progress in deleveraging, fiscal changes and higher wages) indicate that the momentum of investment recorded in advanced economies in 2017 will continue in the short term, however, over a longer time frame, whether this strength is maintained will hinge on real interest rate developments, technological factors and resistance to the threat of protectionism. Second, the expected change in the macroeconomic policy mix in the United States and other advanced economies towards a more expansionary fiscal policy and a less loose monetary policy may raise short-term growth but, if they are not gauged properly, bouts of instability in international financial markets could ensue. Lastly, global financial conditions remain favourable. However, the turmoil on US equity markets early in 2018 which spread swiftly and vigorously to other stock markets seems to indicate less favourable global financial conditions in the future and, at the same time, warns against the risks associated with a sharp adjustment in international financial markets.

Non-financial corporations continued to create employment in 2017, with the trend extensive to all sectors according to the CBSO quarterly sample. As to business activity, although both gross value added and ordinary net profit continued to grow, they did so at a more moderate pace than the previous year, largely owing to the negative performance of certain large corporations with a high weight in the quarterly sample. The non-recurrent items had an unfavourable impact on the final surplus, leading it to shrink significantly. Lastly, the returns on ordinary activities rose and the debt and debt burden ratios declined, suggesting a further improvement in firms’ economic and financial situation. The article also analyses recent developments in trade credit, where there was evidence last year of a pick-up in this financing arrangement, accompanied by reductions in average payment and collection periods.