The Bank of Spain (BdE) closely monitors the effect of the rate hikes approved by the European Central Bank (ECB) to control inflation on the private sector. The increase in financing costs that this rise in the price of money is causing can cause a “very large” percentage of families and companies to become vulnerable. In this way, the delinquency rate, which remains in the area of historical lows, would be a “very delayed” indicator that would have to be followed in “detail” in the future.
It is one of the warnings issued this Thursday by the Director General of Economy and Statistics of the Bank of Spain, Ángel Gavilán, during his speech at a colloquium organized by the Spanish Institute of Analysts and the ICO Foundation to present the ‘Yearbook of the Euro 2023’. Recently, households and companies have shown extraordinary resilience in the face of an adverse scenario, in which two major crises have practically concatenated: the one generated by Covid-19 and the inflationary and energy crisis.
That resistance may have to do, according to Gavilán, with a “structural” change in the economy – thanks to the fact that the private sector has reduced its indebtedness since the last financial crisis – or with some “buffers” or mattresses that have already been exhausted. It could also have to do with the fact that the full effect of the rise in the price of money has not yet been transferred to the economy. A clear translation would take place if the companies that have issued short-term debt had to refinance it at current rates, because this would affect their balance. Since companies with debt generally invest less, this would end up impacting growth prospects.
For her part, the president of the AEB, Alejandra Kindelán, has emphasized that the default rate “continues at a minimum” despite the economic slowdown and the increase in rates. She considers that this has been the case, among other things, thanks to the fact that employment “is holding up well” and is, in fact, the variable that most conditions the evolution of delinquency in the banks’ mortgage portfolios. Regarding the agreement signed between the banks and the Economy to expand the coverage of the Code of Good Practices and protect households at risk of vulnerability, Kindelán considers that it is “early” to judge its use, but has rejected that there is a problem of delinquency.
From the point of view of the Bank of Spain, there are two sources of uncertainty when it comes to making forecasts: how persistent inflation is going to be, given that despite the fact that it began as a negative supply shock, it has become generalized, and how much of the ‘pass through’ (the impact that an increase in the exchange rate has on prices) has yet to materialize. According to Gavilán, “very possibly ‘core’ inflation will not slow down appreciably in 2023” despite the fact that there will be a significant reduction in the general rate.
The Government maintains its GDP forecast at 2.1%
The Secretary of State for Economy and Business Support, Gonzalo García Andrés, also participated in the debate organized by the Spanish Institute of Analysts and by the ICO Foundation. The ‘number two’ of the Ministry of Economic Affairs has explained that the worst of the blow in terms of inflation and costs, which occurred last year, the economy “has already accommodated with remarkable behavior” and growth of 5.5% per second year in a row.
From his point of view, there has been a qualitative change in the labor market, with a sharp reduction in temporary employment, which is yet another example of the resistance of the economy and the effects of the Recovery, Transformation and Resilience Plan. Looking ahead to this year, the prospects were quite negative at the end of the summer, when a “winter of misery” was predicted. The situation has clearly been better than anticipated “because there was no gas rationing”, he has had an impact.
Gonzalo García Andrés pointed out that the Government maintains its 2.1% growth scenario for this year and how the most frequent data since the start of the year show that “the economy continues to grow and create jobs”. Along with the resilience of the labor market and inflation that, despite being high, remains one of the lowest in Europe, the Secretary of State cited other additional elements of strength, such as income from exports, which in the last year they have marked an all-time high despite the fact that the automotive industry has still suffered the impact of the semiconductor crisis.
