How will higher interest rates impact Spain’s manufacturing sector in 2023?

One of the determining factors of the economic scenario is the impact of the ECB’s interest rate hikes on the consumption and investment decisions taken by economic agents. In this article, we examine the financial position of the different branches of Spain’s manufacturing industry in an attempt to determine to what extent they’re exposed to this tightening of financial conditions.

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After more than a decade of low interest rates, in mid-2022 the ECB and major central banks effected a sharp turnaround in monetary policy with the aim of curbing strong inflationary pressures, mainly through interest rate hikes. This turnaround has led to a significant tightening of financial conditions that has affected all sectors of activity in the Spanish economy, including manufacturing.

The financial position of Spain’s manufacturing industry

In order to determine how the rise in interest rates is affecting Spanish industry, we have analysed the financial position of manufacturing as a whole as well as its main industrial groupings, both from the point of view of debt and also interest burden.7

  • 7. The debt ratio includes borrowed funds with costs as a percentage of gross operating profict (GOP) and financial revenue (including dividends). The financial revenue is calculated as the interest paid on borrowed funds, again out of GOP and financial revenue.

Financial position ratios for manufacturing

Last actualization: 21 June 2023 - 15:04
Source: CaixaBank Research, based on data from the Bank of Spain’s Central Balance Sheet Data Office.

The first conclusion from our analysis reveals that the financial position of the manufacturing sector is healthy when compared to the economy as a whole and, above all, to other sectors of production, as summarised in the table above. Both the sector’s debt ratio and its interest burden were around half those borne by the economy as a whole in 2021 (latest available data). Secondly, both ratios have fallen considerably in recent years from the levels reached in previous decades (see the chart above), especially in the case of the interest burden, which in 2021 was close to a record low.8 Thirdly, it should be noted that the sector is in a much healthier financial position than in previous cycles of rising interest rates. In the rate hike cycles of 2000 and 2005, its interest burden exceeded 10% while this even exceeded 17% in the short hike cycle of 2011. In summary, the Bank of Spain’s data suggest that manufacturing is not excessively exposed to the current tightening of monetary policy and that, in any case, it’s in a better position than in previous restrictive cycles.

  • 8. The latest annual Central Balance Sheet data are for 2021. The Integrated Central Balance Sheet Data Office provides quarterly data for the sector aggregate of «Industry without refining» (which includes mining but excludes the branch of «Oil refining»), noting that the industry’s interest burden and debt ratio continued to moderate in 2022.

Although manufacturing as a whole is in a healthy financial position and not too exposed to interest rate hikes, some of its branches have a high interest burden.

However, the different branches that make up the industry are very heterogeneous. The tables below show the financial position in 2021 of the branches that make up the industry. Of particular note is the manufacture of non-automotive transport («Other transport»), which includes the manufacture of ships, locomotives, air and spacecraft and military vehicles, among others. It should be noted that, historically, the uniqueness of this branch’s business and production model has led to high levels of debt and interest burden. Moreover, its financial position ratios are not significantly correlated with economic and financial cycles.


Also of note is the high level of debt observed in those industries related to fashion; i.e., the branches of apparel and leather and footwear, in which the interest burden exceeds 10% of the operating profit and financial income, these branches having the most delicate financial position in the manufacturing sector (without the atypical case of the manufacture of other transports). Among the rest of the branches, the high interest burden observed in 2021 for the wood, paper, metallurgy, auxiliary services to construction and graphic arts industries is particularly significant. This is a group of energy-intensive industries and they were therefore affected by the energy crisis in 2022.9

Finally, it’s important to note that, without the food industry and the manufacture of metal products, two sectors with higher debt ratios and interest burdens, the share of the most exposed branches in total industry is relatively small: the five sectors with the highest interest burden account for barely 10% of the manufacturing production index.

  • 9. For a detailed analysis of the most energy-intensive manufacturing sectors, see the article «Rising energy prices: which sectors are being hit the hardest?» in the 2022 Manufacturing Industry Sector Report.
The trends in debt levels and interest burden of Spanish industry

In addition to this static picture, in order to understand the financial health of manufacturing’s different branches it’s also useful to observe how their level of debt and interest burden have evolved over the past few years. The following tables show the increase in debt and interest burden since 2015, the branches being ordered in terms of the change between 2021 and the average for the five years prior to the pandemic.

After the manufacture of non-automotive transport, fashion-related industries (apparel and leather and footwear) are the least financially strong.


Once again, the branches that attract most attention are those of apparel and leather and footwear, which already stood out for their high debt and interest burden ratio in 2021 and, moreover, are the groupings whose financial position has deteriorated the most in recent years. There can be no doubt that this is one of the areas hardest hit by the effects of the pandemic, both in terms of restrictions on business and the collapse in demand, as well as the change in business model towards multi-channelling.

Albeit to a lesser extent, the branches of manufacturing of electrical equipment, machinery repair, beverage manufacture, pharmaceutical industry, graphic arts and automotive industry also stand out for their gearing in recent years, all of them posting a larger upturn than the mean for manufacturing as a whole. Apart from the cases of the automotive and pharmaceutical industries, these branches have posted a high debt ratio in recent years which has also continued to grow after the pandemic.

On the other hand, the paper, tobacco, metallurgy and furniture manufacturing industries, among others, have all reduced their debt in recent years. The first two branches have always had modest debt ratios but metallurgy and furniture manufacturing did have high debt and interest burden ratios in previous years, well above average, so the huge deleveraging effort undertaken by them in a year as complicated as 2021 is particularly positive.


The metallurgy and furniture manufacturing industries not only stand out for having reduced their debt in recent years but also for the major deleveraging they’ve carried out.

As for the interest burden, in addition to the aforementioned cases of fashion-related branches, th Interests over GOP + financial revenue e slight increase recorded in the pharmaceutical industry is also of note, although it should be remembered that its interest burden is not remarkable when seen within the context of manufacturing as a whole (it barely accounted for 3.9% of GOP plus financial revenue in 2021).

What is most striking about the trends in interest burden is that, without the case of the paper industry, most of the branches with an above-average interest burden in 2021 are also those that have reduced this burden the most with respect to previous years. Among these, the greatest reduction in interest repayments occurred in metallurgy and the manufacture of furniture, other transport and computers.


On balance it seems clear that, on this occasion, the manufacturing industry as a whole is tackling the challenge of rising interest rates from a position of relative strength. However, an analysis by branch of activity reveals some industries that are more sensitive to higher interest rates because their debt ratios were relatively high just before the ECB hikes, although these branches account for barely 10% of the sector’s total. Among these branches, the manufacture of apparel and leather and footwear stand out, both related to the fashion industry which was hit particularly hard by the pandemic and its consequences. The rest of the branches are in a strong financial position, so they will be less affected by higher interest rates.