Spain Achieves Largest External Surplus in Three Decades
The Spanish economy reports a historic surplus driven by tourism and European funds, amid rising external debt challenges.
Spain recorded its largest external surplus in over 30 years in 2024, marking a significant development in the economic relationship between Spain and the rest of the world.
The external surplus reached 4.2% of the GDP, equating to approximately €66 billion, the highest level since 1993, a period characterized by the devaluation of the peseta.
This surplus is attributed to robust performance in tourism, business services, and substantial inflows from European Union funds.
While Spain has achieved a remarkable external surplus, the country grapples with a significant external debt, which has accumulated since the financial crisis.
The external debt is offset by international assets, leading to a net external debt position, which is also referred to as the net international investment position.
This position has been improving relative to the size of the Spanish GDP, reflecting the corrections made since the 2008 economic bubble and the subsequent austerity measures that have kept wages low to enhance competitiveness.
As of the end of 2023, the net external debt stood at 44% of GDP, amounting to approximately €700 billion, a marked decline from the peak of around 90% during the financial crisis.
However, this level still exceeds the 35% threshold set by the European Commission, which implies the presence of economic imbalances.
Although the gross external debt, which includes liabilities without netting off the assets, continues to rise and approaches €2.6 trillion, the percentage in relation to the GDP remains close to 160%.
This persistence highlights that it is not merely the debt levels that are decreasing, but rather an increase in international assets totaling around €200 billion during the last year.
The shift in assets may correlate with an enhanced GDP performance, asset valuation increases, and currency fluctuations; concurrently, more resources are being allocated abroad.
The diversification of investments abroad is seen as a strategy to fortify banks and companies against domestic economic fluctuations.
However, the shift could limit domestic capital investment that is crucial for Spain, which still lags in certain technological sectors.
Foreign investment remains vital for technological advancement and infrastructure development.
Moreover, the composition of external debt has improved, with higher proportions in capital investments, which do not require repayment, coupled with decreased private debt and increased public debt.
The public debt, characterized by lower interest rates and longer maturities with implied backing from the European Central Bank, remains a significant vulnerability.
According to the Bank of Spain, foreign investors hold about €713 billion in public administration debt, an increase of €61 billion from the previous year.
As a percentage of GDP, this external public debt has risen from 43% to 44%.
Efforts to reduce public debt while simultaneously attracting foreign capital and diversifying domestic investment are seen as interconnected goals for sustaining economic stability and growth.
The external surplus reached 4.2% of the GDP, equating to approximately €66 billion, the highest level since 1993, a period characterized by the devaluation of the peseta.
This surplus is attributed to robust performance in tourism, business services, and substantial inflows from European Union funds.
While Spain has achieved a remarkable external surplus, the country grapples with a significant external debt, which has accumulated since the financial crisis.
The external debt is offset by international assets, leading to a net external debt position, which is also referred to as the net international investment position.
This position has been improving relative to the size of the Spanish GDP, reflecting the corrections made since the 2008 economic bubble and the subsequent austerity measures that have kept wages low to enhance competitiveness.
As of the end of 2023, the net external debt stood at 44% of GDP, amounting to approximately €700 billion, a marked decline from the peak of around 90% during the financial crisis.
However, this level still exceeds the 35% threshold set by the European Commission, which implies the presence of economic imbalances.
Although the gross external debt, which includes liabilities without netting off the assets, continues to rise and approaches €2.6 trillion, the percentage in relation to the GDP remains close to 160%.
This persistence highlights that it is not merely the debt levels that are decreasing, but rather an increase in international assets totaling around €200 billion during the last year.
The shift in assets may correlate with an enhanced GDP performance, asset valuation increases, and currency fluctuations; concurrently, more resources are being allocated abroad.
The diversification of investments abroad is seen as a strategy to fortify banks and companies against domestic economic fluctuations.
However, the shift could limit domestic capital investment that is crucial for Spain, which still lags in certain technological sectors.
Foreign investment remains vital for technological advancement and infrastructure development.
Moreover, the composition of external debt has improved, with higher proportions in capital investments, which do not require repayment, coupled with decreased private debt and increased public debt.
The public debt, characterized by lower interest rates and longer maturities with implied backing from the European Central Bank, remains a significant vulnerability.
According to the Bank of Spain, foreign investors hold about €713 billion in public administration debt, an increase of €61 billion from the previous year.
As a percentage of GDP, this external public debt has risen from 43% to 44%.
Efforts to reduce public debt while simultaneously attracting foreign capital and diversifying domestic investment are seen as interconnected goals for sustaining economic stability and growth.
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