Financial Stability in Spain: A Delicate Balance

The Spanish economy is facing a multitude of challenges that could impact its financial stability. Rising interest rates, energy prices, and economic scenarios are putting pressure on households and businesses alike. In this article, we will examine the potential effects of these factors on the financial stability of Spain.

Rising Interest Rates: A Growing Burden

The increase in interest rates has a significant impact on households with high net interest burdens. A 100-basis-point (bp) rise in interest rates would lead to an almost 2% point increase in the proportion of households with high debt.

• Most Affected Households: The impact is most pronounced among indebted households between the 20th and 40th percentiles of the income distribution.
• Public Finances: Public finances are more sensitive to interest rate movements due to the steep rise in the public debt-to-GDP ratio since 2007.

Rising Energy Prices: A Moderate Impact

The fluctuations in energy prices have a moderate average effect on the degree of financial vulnerability of firms, with notable cross-sector heterogeneity. However, certain sectors are more affected than others.

• Businesses: The overall impact on businesses stands at slightly over 2% points, but is expected to top 5% points in the three most affected sectors.
• Households: Price rises will hit lower-income households the hardest, given that energy expenditure accounts for a larger proportion of consumption.

Banking Industry Stress Tests

The Financial Stability Report includes the results of banking industry stress tests for two potential stress scenarios (adverse and severe) for the period 2022-2023.

• Adverse Scenario: An increase in energy prices and a greater persistence of international trade bottlenecks would lead to a worsening of financial conditions.
• Severe Scenario: Price shocks are slightly more significant than under the adverse scenario, while including a more marked worsening of households’ and firms’ confidence.