Banco de España: Financial Stability Report. Autumn 2024
Executive Summary
The Spanish economy is facing a number of challenges, including rising inflation, a widening current account deficit, and a high level of public debt. The Banco de España’s Financial Stability Report warns that these challenges could pose a risk to financial stability.
Key Findings
- Inflation is rising. The Harmonized Index of Consumer Prices (HICP) rose by 8.2% in October 2024, the highest level since May 1986. Inflation is being driven by a number of factors, including rising energy and food prices, as well as supply chain disruptions.
- The current account deficit is widening. The current account deficit widened to €5.2 billion in the second quarter of 2024, the largest deficit since 2012. The widening deficit is due to a number of factors, including a decline in exports and an increase in imports.
- Public debt is high. Public debt reached 118.7% of GDP in the second quarter of 2024, the highest level since 1902. High public debt levels could make Spain more vulnerable to a financial crisis.
- The banking sector is facing a number of challenges. Banks are facing rising credit costs, declining profitability, and increased competition from non-bank lenders. The banking sector is also exposed to a number of risks, including the risk of rising interest rates and the risk of a decline in the property market.
Policy Recommendations
The Banco de España recommends a number of policy measures to address the challenges facing the Spanish economy. These measures include:
- Tightening monetary policy. The Banco de España raised its key interest rate by 25 basis points in July 2024, and it is likely to raise rates again in the coming months. Raising interest rates will help to contain inflation.
- Fiscal consolidation. The government should reduce its budget deficit and public debt levels. This will help to reduce the risk of a financial crisis.
- Structural reforms. The government should implement structural reforms to improve the competitiveness of the Spanish economy. These reforms should include measures to reduce labor costs, improve education and training, and promote innovation.
Conclusion
The Spanish economy is facing a number of challenges. The Banco de España warns that these challenges could pose a risk to financial stability. The government should implement a number of policy measures to address these challenges.
Banco de España: Financial Stability Report. Autumn 2024
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