Household debt fell to 42.5% of GDP, its lowest level since 1999, and net financial wealth reached a record of €2.7 trillion. However, analyst Marc Vidal warns that absolute debt rose by 4% and that the improvement is due to nominal GDP growth driven by inflation.
The economic analyst Marc Vidal has focused on the fine print of the latest data from the Bank of Spain regarding household debt. Although official figures show a drop to 42.5% of GDP, the lowest level since 1999, Vidal warns that debt in absolute terms has not decreased, but rather increased.
The trick of nominal GDP
According to data from the Bank of Spain, household debt in euros rose by 4%, increasing from €700 billion to nearly €728 billion. The paradox is explained because nominal GDP, driven by inflation, grew faster than the debt itself. Thus, the percentage of GDP decreases, but the amount owed is greater.
Vidal describes this phenomenon as a 'dissolution' of debt, rather than a real amortisation.
It's not that households are paying off their loans, no, no, they are dissolving them, states the investor. According to him, it is the same mechanism that European governments used to liquefy their debt during the post-war period.
Record wealth that does not reach everyone
The Bank of Spain also highlights that the net financial wealth of families reached a record of €2.7 trillion, a 9.3% increase from the previous year. However, Vidal points out that this wealth mainly comes from the revaluation of stocks and funds, not from new savings by families.
This has a direct consequence on inequality: those revalued assets are concentrated in families that already had saving capacity. In a country where the richest 1% holds around 30% of the wealth, the 9.3% increase in aggregate wealth multiplies what those who already had possess. Meanwhile, the OECD warns that the purchasing power of the average salary will remain frozen over the next two years.
A negotiating maneuver in Europe
Marc Vidal introduces a reflection on the 'timing' of these figures. The analyst notes that this flurry of positive figures appears just as Spain defends a mechanism for joint European debt in the Eurogroup. The optimistic presentation of the national economy could be a negotiating strategy: the stronger the economy appears, the better for negotiations. Vidal concludes that the publication of these data is not a coincidence.
For the reader interested in domestic economics, the key is to understand that the reduction of debt relative to GDP does not mean that households are less indebted in absolute terms. Furthermore, record wealth does not benefit the majority, but rather those who already possess financial assets. The next publication of data from the Bank of Spain, scheduled for the next quarter, will show whether this trend consolidates or if the 'trick' of nominal GDP fades with a possible moderation of inflation.
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