Spain's Capital Flight Now Worse Than Asian Financial Crisis

The flight of capital from Spain is now worse than what Indonesia, one of the hardest hit countries during the Asian financial crisis, experienced in the late 1990s, according to analysis by Nomura.

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

Spaniards and foreign investors have been pulling money out of Spanish banks as the economy has worsened in recent months, and Nordvig said without the single currency and the flows from the ECB, Spain would already be going through a major currency crisis. (Read More: Depression, Suicides Rise as Euro Debt Crisis Intensifies)

We would stress that the broad-based nature of the capital flight, which involves both banking claims and securities and flows from both residents and non-residents, makes for a rather extreme overall outflow, and one that raises serious concerns about the implications for banking sector stability and economic growth,” Nordvig wrote.

According to Nomura, there are plenty of explanations for this, including the fact that the Spanish economy is more leveraged than Indonesia’s and the currency union allows very large capital movements to take place. (Read More:Spaniards Pull Out Cash and Get Out of Spain)

Data from the Bank of Spain, which Nomura highlighted, showed foreigners were large sellers of Spanish securities in the latest quarter, which generated an outflow of 19.4 percent of GDP. There was also a large outflow from Spanish residents accumulating foreign bank claims. In the latest quarter, the outflow from this source was 16.7 percent of GDP.

Spain is now front and center in the latest round of the euro zone debt crisis but the Spanish government has so far resisted asking for a bailout from the European Union and other international creditors, except for the aid already agreed to for its banking sector. (Read More: Spain Faces Post-Holiday Detox as Time Runs Out)

But Nomura’s economics team believes that Spain won’t be able to avoid a full-blown bailout, which would include a more active role of the ECB in the Spanish bond market.

“The scale of capital flight that took place over the last few months in Spain supports this view,” Nordvig said.

Italy and Spain Diverge

The capital outflows also show that Spain’s fortunes seem to be worsening much faster than those of Italy, a country with a much higher debt-to-GDP ratio.

“In Italy's case, both portfolio outflows and other investment outflows represent a touch more than 5 percent of GDP. For Spain, both sources of outflows are much larger; about 20 percent of GDP in the case of portfolio outflows and about 30 percent in the case of other investment outflows,” Nordvig said.

Nordvig also pointed out that while bank deposits had fallen at Spanish banks, they had remained quite stable at Italian banks.