Debt of Spanish non-financial corporations. Development over time and comparison with the euro area

Between the mid-1990s and 2007, the rate of growth of borrowing by Spanish non-financial corporations rose very sharply, outpacing the rate of growth of GDP and of income generated by the sector. In consequence, aggregate debt ratios to gross operating surplus and GDP, which were initially lower than the euro area average, rose above said average and above the ratios of most other euro area countries, exceeded only by those of Portugal and Belgium (see Chart 1). Over the past two years, the rate of growth of corporate debt has moderated significantly, recording negative rates of change since end-2009. Nevertheless, low growth in GDP and corporate profits has meant that debt ratios have remained high. To assess the implications for macroeconomic and financial stability of this change in the financial situation of firms, it is important not only to study aggregate indicators for the whole nonfinancial corporations sector but also to make a more disaggregated analysis. In particular, a study at sectoral level that may help determine whether this comparatively high aggregate debt is the result of widespread greater recourse to borrowing across all branches of activity, or of a greater increase in borrowing in just some areas of activity or a specific pattern by productive specialisation concentrated on activities with greater propensity for debt. Similarly, to estimate the level of leverage attained, comparisons by sector with other euro area countries are also appropriate. This article analyses the debt ratios of Spanish non-financial corporations by sector, both over time and in comparison with other euro area countries, using the BACH database that contains harmonised data on the balance sheets and profit and loss accounts, aggregated by sector, of a sample of firms from the main euro area countries. The article fi rst examines the debt ratios of these corporations in the present decade, a period of maximum growth in corporate debt. There follows a comparative analysis with the euro area for 2007 (permitting an approximation of the financial position of Spanish firms vis-à-vis their euro area peers immediately before the economic crisis) and for 2008 (the last year for which information is available in the BACH database). Accordingly, the analysis reflects the impact on debt ratios of the initial phase of the recent economic crisis.