The economic growth of recent years, coinciding with the rebound since the pandemic, is leaving an incomplete recovery in some components. With a magnifying glass placed on the Spanish business fabric, the Bank of Spain reveals an incomplete recovery regarding the pandemic. 25.5% of companies record losses (negative net ordinary result) and have not yet recovered pre-Covid levels, according to the Bank of Spain, with data until the first half of 2024. The positive side is that companies are less vulnerable regarding the exit from the financial and debt crisis.
Before the pandemic this result was 24.6%, while at the worst moment for the economy more than 35% of companies had negative results and the average is 29%. Companies have had lights and shadows in recent years. Business vulnerability indicators are at “historically low” levels, especially in medium and large companies.
The largest companies have been involved a significant reduction in their debt levels and there are fewer firms with high financial pressure. And, in general, the percentage of companies in losses, with high debt or with high financial pressure has decreased compared to the history of the last decade (2014-2023). Highlights the commerce, hospitality and restaurant sectorfor being the one in which vulnerability levels were reduced most intensely. On the contrary, in the energy branch a certain worsening was observed in the three indicators.
Business surpluses showed favorable behavior in the first half of 2024, always with heterogeneity by sector. Companies have dedicated their surpluses to reducing fat in recent years to pay for the open bar of the boom at the beginning of the century. Especially since the debt crisis of the last decade, when instability took over balance sheets and the business climate.
Since the end of the pandemic Spanish companies are healthier, with a level of debt unprecedented in more than two decades. The debt of non-financial companies has gone from representing a value that exceeded 90% of GDP in the first quarter of 2021 to representing 65% in June 2024. It is a level not observed since 2022 and, even, slightly lower than of the eurozone (1.8 points), explains the supervisor in its Autumn Financial Stability Report.
The financial burden due to the cost of interest has tripled since the summer of 2022 in relation to business surpluses and, to date, remains at levels higher than those observed before the European Central Bank (ECB) rally. In just two years, financial costs have gone from representing 6% of gross operating surplus (EBE, an indicator that could be assimilated to business margins), to representing 17.7% in the second quarter of the year, practically triple .
But this rise has only equalize the indicator with the historical average: is within the range observed over the last 25 years, which places the financial burden between 16% and 18% of companies’ surpluses.
In any case, the supervisor perceives that companies are already cushioning the effect of the cycle of interest rate increases. They point out that interest payments have already experienced a slight decrease and this trend could continue at the pace of rate cuts.
Lower investment, lower productive capacity
Private productive private investment offers little hope of bringing joy at the expense of cleaning up balance sheets by repaying debt, which represents considerable financial relief but compromises long-term growth. This indicator measures gross fixed capital formation without public investment or money destined for brick and mortar and is surrounded by uncertainty.
“The persistent sluggishness of business investment in our country represents a downward risk for the GDP growth path”noted the Bank of Spain in the macroeconomic projections presented a few days ago. In the report they admit that the reduced dynamism of investment is negatively surprising them.
All the money that is being allocated to reduce the acquired debt could go to improve the country’s productive capacity and, consequently, to expand the potential GDP for long-term growth.
Investment maintains little progress, meaning that it has not yet recovered the levels prior to the collapse caused by the pandemic, emphasizes the Institute of Economic Studies (IEE), in its latest situation report. In fact, it is the only component of domestic demand that has not yet recovered pre-Covid levels. They highlight investment in machinery and capital goods as their main duty.
In the presentation of the current situation report, its president Íñigo Fernández de Mesa highlighted that investment continues to be “the great weakness” of the Spanish economy. The weakness of private investment has been offset on paper by the boost in public investment. European funds Next Generation EU would have contributed to it.
According to the Quarterly National Accounts of the National Statistics Institute (INE), investment in capital goods maintains a modest growth of 0.2% quarterly. Compared to the end of 2019, investment in construction is still -2.6% below, which worsens in the case of investment in machinery and equipment to -4.3%.
LinkedinBeloud
#total #number #companies #losses #exceeds #exceeds #preCovid #level
