Spanish lenders’ net borrowings from the European Central Bank jumped to a record 337 billion euros ($411 billion) in June as the European bailout agreement failed to ease their access to funding.
Net average ECB borrowings climbed from 288 billion euros in May, the Bank of Spain in Madrid said today. Gross borrowing was 365 billion euros, up from 325 billion euros in May, accounting for 30 percent of borrowing in the euro region.
Spain asked for as much as 100 billion euros of European loans to bail out its banks on June 9 as the government’s access to financial markets narrowed and its bond yields rose to about 7 percent. Banks’ increased dependence on the ECB may reflect deposit flight from Spain, which is suffering the biggest slump in foreign investment since the start of the euro.
“The fear is that this was triggered by a further deposit outflow,” said Tobias Blattner, a European economist at Daiwa Capital Markets in London. “It’s a very large sum.”
Residents’ deposits fell 2.5 percent in April from March, according to Bank of Spain data, declining 5.4 percent from the same month a year ago. Non-residents withdrew 24.6 billion euros of stock and bond investments in April, the most since at least 1999, and compared with 4.54 billion euros a year ago, the regulator’s data show.
Non-residents cut their holdings of Spanish bonds to 37.5 percent of the total in May, from 51.5 percent at the end of last year. That has left Spanish banks, which were among the biggest beneficiaries of the three-year loans offered by the ECB in December and February, to pick up the slack as the government increasingly depends on them for financing.
Spain’s 10-year benchmark bond yield rose to 6.68 percent at 12 p.m. today in Madrid, compared with 6.64 percent yesterday, after Moody’s Investors’ Service downgrade Italy’s credit rating to Baa2 from A3, one step above Spain and two from junk. Italy’s 10-year bonds yield 67 basis points less than Spain’s, compared with 113 basis points on June 19.
Adding to Spain’s liabilities, the government plans to approve today a program to help regional governments regain access to capital markets that have been shut to them for more than a year. The Treasury will offer guarantees for debt issuance to regions that need them and demand budget cuts in return, Deputy Economy Minister Fernando Jimenez Latorre said in Madrid today.
Spain is trying to rein in its budget deficit with the biggest cuts and tax hikes on record, undermining household spending that’s already depressed by indebtedness and a 25 percent jobless rate. Exports, which the government is relying on to drive the recovery, declined in April for the first time in two years, as growth in foreign markets eased.
China’s growth slowed for a sixth quarter to the weakest pace since the global financial crisis, data showed today, putting pressure on Premier Wen Jiabao to boost stimulus. Singapore reported an unexpected economic contraction as China’s slowdown undermines the global recovery already threatened by Europe’s debt crisis and limited U.S. job growth.
U.S. companies are feeling the effects of China’s deceleration. Advanced Micro Devices Inc., the second-biggest maker of processors for personal computers, this week reported an unexpected drop in quarterly sales in part because of weakness in China. Cummins Inc., a maker of truck engines, reduced its revenue forecast, saying demand in Brazil, China and India isn’t improving as the company anticipated.
The slowdown is cooling inflation. In the U.S., wholesale prices probably fell 0.5 percent in June from May, compared to a 1 percent drop the previous month, economists forecast. The data are due at 2:30 p.m. in Washington.