Spain capital

Spanish capital flight is now worse than the Asian financial crisis

On a rolling three-month basis, portfolio and investment outflows from Spain totaled 52.3% of the country’s gross domestic product (GDP), more than double Indonesia’s outflows, which reached 23 % of GDP at the time of the Asian crisis. crisis, Jens Nordvig, global head of G10 FX strategy at Nomura, wrote in a note to clients on Tuesday.

Spaniards and foreign investors have withdrawn money from Spanish banks as the economy has deteriorated in recent months, and Nordvig said that without the single currency and ECB flows, Spain would already be going through a major monetary crisis. (Read more: Depression and suicides rise as euro debt crisis deepens)

We would like to point out that the generalized nature of capital flight, which involves both bank claims and securities and flows from both residents and non-residents, leads to quite an extreme aggregate outflow, and one that raises questions. serious concerns about the implications for the banking sector. sector stability and economic growth,” Nordvig wrote.

According to Nomura, there are many explanations for this, including the fact that the Spanish economy is more indebted than that of Indonesia and that the monetary union allows very large movements of capital. (Read more:Spaniards withdraw money and get out of Spain)

Data from the Bank of Spain, which Nomura pointed to, showed foreigners were big sellers of Spanish securities in the last quarter, which generated an outflow of 19.4% of GDP. There has also been a significant outflow of Spanish residents accumulating foreign bank claims. During the last quarter, outflows from this source represented 16.7% of GDP.

Spain is now at the center of the latest round of the Eurozone debt crisis, but the Spanish government has so far resisted seeking a bailout from the European Union and other international creditors, exception of the aid already agreed for its banking sector. (Read more: Spain faces post-holiday rehab as time is running out)

But Nomura’s economics team believes that Spain will not be able to avoid a full bailout, which would include a more active role for the ECB in the Spanish bond market.

“The scale of capital flight that has taken place in recent months in Spain supports this view,” Nordvig said.

Italy and Spain diverge

Capital outflows also show that Spain’s fortunes appear to be deteriorating much faster than those of Italy, a country with a much higher debt-to-GDP ratio.

“In the case of Italy, portfolio outflows and other investment outflows represent just over 5% of GDP. For Spain, the two sources of outflows are much more important; around 20% of GDP in the case of portfolio outflows and around 30% in the case of other investment outflows,” Nordvig said.

Nordvig also pointed out that while bank deposits fell at Spanish banks, they remained fairly stable at Italian banks.