Spain's January Slump Hits: Rising Business Closures

Spain's January Slump Hits: Rising Business Closures

There is one indicator that does not lie and almost no one watches: business dissolutions. In 2022, there were 68,413 closures, an 8% increase from the previous year, and shutdowns surged by 21.5%. Commerce (12,481) and construction (9,570) led the bloodletting. Meanwhile, restaurants remain overwhelmed on weekends. Both things are true. And that is where the problem begins.

The perception that the economy holds up relies on everyday scenes: queues outside bars, packed terraces, and supermarkets with full registers. But that thermometer is deceptive. As a sector analysis recalls, restaurants were also full in 2010 and 2011, during the depths of the crisis. The reason is structural, according to a participant in the debate: in Spain there are 10 million pensioners and 4 million public employees whose purchasing power hardly changes with the cycle. That block, plus rentiers and workers with stable salaries, fills terraces regardless of the situation. A beer costs two euros.

Small spending holds; big spending collapses

Local consumption survives because it is the last thing to be cut. What falls is everything else. New vehicle registrations and housing sales have been in free fall for months, and some sectors feel it before the statistics do. Rural tourism is the most cited case: the bridges in November and December 2022 did not just lack bookings, there were not even inquiries, whereas in 2021 the same holidays were packed. Hotels experienced 2022 with a post-pandemic rebound and soaring prices. That fuel is running out.

Some argue that savings accumulated during the pandemic continue to sustain consumption. It is a reasonable argument, but it has an expiration date. The other side of the balance consists of businesses that cannot pass on costs: if they raise prices, they lose customers; if they do not, they eat into margins. Many wait for competitors to move before touching the menu. When everyone raises prices at once, customers reduce quantity or frequency. And then everyone loses. Tax authorities, however, do not lose: VAT revenue rises because prices have increased, not because more is sold.

The two-estimulante ilegal society

The emerging pattern is that of a divided economy. On one hand, those with indexed income or assets who can live as if inflation does not exist. On the other, a silent majority that has stopped allowing themselves weekend getaways and now reviews the menu before ordering. This majority is invisible in aggregate consumption data, because their cuts are spread across thousands of small items that do not make headlines. The minimum wage earner with a mortgage does not have 300 euros free for beers. Neither does the renter.

The renovation and furniture sector, however, is fully booked: orders months ahead and a lack of qualified labor. It is the exception that proves the rule: those with liquidity spend it on bricks and houses, not on whims. Money has not disappeared. It has concentrated.

What closure and insolvency data say

The commercial sector recorded 1,460 insolvency proceedings in 2022, almost 34% more than the previous year. Construction added nearly 1,000 cases, with an increase close to 20%. The manufacturing industry processed 788 files, 27% more. These are figures of business destruction, not a mild cooling. And the deterioration of the trade balance adds pressure to the macro picture.

Interest rate hikes act with a delay. They do not destroy the real estate market the same month the ECB moves its chips, but with a lag of around a year and a half. This means that the blow starting to be felt now corresponds to decisions made long ago. And those made in the coming months have not yet taken effect. With an election year ahead, the temptation to inject and gloss over is high. What comes after, say the pessimists, will be severe.

The price of the shopping basket: the painful data

Price increases in food over 24 months leave figures difficult to digest: olive oil up 71.3%, sugar up 50%, flour up 44.4%, whole milk up 44.3%, eggs up 37.9%. These percentages eat up any wage increases. And they explain why consumption shrinks even if terraces remain full: cuts are made in weekly shopping, not in Sunday drinks.

The question is not whether the economy is cooling. It is how long it takes to be felt on the street. With these differentials between prices and incomes, the contraction should already be evident. And yet, some businesses do not stop. How long can that dissociation last?