Spanish corporate debt drops for 29th month in August
* Spain corporates lending around 100 pct of GDP
* Companies say competing impossible without more, cheaper credit
* Credit crunch offsets competitive advantages after reforms
By Paul Day
MADRID, Oct 1 (Reuters) - Debt held by Spanish companies dropped for the 29th straight month in August to the lowest level since March 2007, Bank of Spain figures showed on Tuesday, a credit crunch which has hit small businesses particularly hard.
Spain's recession-plagued economy is expected to have grown for the first time in two years in the third quarter, according to government estimates, lifted by strong exports as companies look abroad to offset losses due to dire demand at home.
Its companies hold just over a trillion euros ($1.35 trillion) in debt, around 100 percent of Spain's gross domestic product, down from 1.3 trillion euros at its height in Oct. 2008 after the crisis forced businesses to pay loans.
There are signs that shrinking average wages and rising productivity are helping Spanish businesses stand up against international rivals, but companies say the lack of new loans threatens to undo those gains.
"The main problem has been financing and it is because of this companies will die, little by little. The cut off has been brutal. The worst part of the crisis is still to come," says Javier Ruiz de Azcarate, chairman of Catenon, a Madrid-based business executive search company.
Spain's banking system, forced though a restructuring process since a decade-long housing bubble burst, cutting the sector almost in half, say lending is down because of a lack of demand.
But many companies, especially small- and medium-sized enterprises which make up the lion share of Spain's corporates, say the push to diversify and compete globally is being hampered by the high cost of credit and domestic banks unwillingness to lend.
Lending rates for loans of under a million euros, mostly applied for by small- and medium-sized companies, stood at an average of 4.13 percent in Spain in July compared to a euro-zone average of 3.03 percent and 2.5 percent in Germany, according to European Central Bank data.
Politicians have passed reforms aimed at reinventing Spanish industry since the property sector collapsed, seeking to make its labour markets more flexible and encourage companies to diversify into more dynamic markets.
But Spanish competitiveness has actually slipped since 2008.
The World Economic Forum's Global Competitiveness Report, puts Spain's ranking, made up from a survey of economic leaders' perceptions, at 36th of 148 countries in 2013-2014, from 29th in 2008-2009.
"There have been improvements, mainly in education, and one of Spain's main strengths is the level of trained personnel. But companies can't make the most of that right now," said Maria Luisa Blazquez, researcher at Spanish business school IESE who helped compile the WEF's data.
Spain is home to some of the worlds most sucessful companies, including retailer Inditex, bank Santander and utility Iberdrola, but the smaller groups are struggling.
According to WEF's study, ease of access to loans for Spanish companies in 2009-2010 went from 71st to 122nd in 2013-2014, below the rating for developing nations such as Nigeria and Costa Rica.
"The companies have the skills, trained personel and an ability to innovate, but without a source of financing, they're cut off from expanding abroad," says Blazquez. ($1 = 0.7387 euros) (Reporting By Paul Day; Editing by Fiona Ortiz and Patrick Graham)
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