Most readers will be familiar with the standard interpretation of Spain’s decreasing stock of household loans, currently at negative three percent year-on-year, as being proof of diminishing credit creation – with all that this implies as to the health of the economy and the banking system. But this figure is the sum of new minus cancelled debt and, in an age of deleveraging, the actual state of credit creation is hidden by the sheer volume of loans that are being paid down to zero.
To give a better idea of the actual state of affairs, the Bank of Spain publishes a monthly statistical series of new credit granted. The quarterly sum of new mortgage, consumer and other loans expressed as a percentage of household spending, is showing signs of finally turning positive after years of consistent mostly negative readings.
The last chart shows the relative changes in Spanish households’ sources of liquidity between 2007 and 2014. Credit summed to 40 percent of household consumption plus fixed investment in the earlier year. Today it is at 8. A continued improvement in the labour market will more than counteract the resultant drop in unemployment subsidies, but that difference - assuming that we won't soon be seeing a sudden and radical increase in household indebtedness - will have to be the main source of increased household spending for the foreseeable future.
José Domingo Rosello, with contributions from Charles Butler and Javier García Echegaray.
