Are we facing a worse scenario than three decades ago? Are economies better prepared? Do families run the same risks as then?
Since the beginning of the 21st century, we have gone from shock to shock. In the year 2000, if we were concerned about the 2000 effect and the general blocking of computers, in 2008 we started to enter the biggest financial crisis since data became available.
This crisis brought with it an increase in loans and a decrease in deposits and savings in the economy. This negative trend for households lost intensity as the economic recovery approached, starting in 2019.
With the Covid-19 pandemic, this trend was reversed and the volume of deposits and savings began to increase, with great stability in the volume of credit requested by households. In those months there was an exponential increase in the volume saved, due to the inability to incur costs due to the total closures and the constraints of the following months.
When everything seemed to indicate that deposits would decline due to an increase in consumption, the new brewing crisis has again increased the volume of deposits and savings.
The uncertainty resulting from the rise in interest rates, which makes mortgages more expensive; price out of control, with inflation close to double digits, and the war in Ukraine, whose end is not yet in sight, are curbing consumption and increasing savings. There is even a timid increase in credit applications to accommodate unexpected payments.
Overall, households will face this new economic recession in better conditions, which we hope will be short-lived, lasting no longer than the first half of 2023.
The 2008 financial crisis brought about changes in financial culture. Also legal changes such as protocols for the sale of financial products or mortgage signatures and the role of notaries. But this will be insufficient.
Inflation does not appear to be abating and the loss of purchasing power will be traumatic this winter. In Spain, electricity bills, which will remain high despite the efforts of the central government and the European Union, and the rise in mortgages under review in the coming months will lead to an increase in arrears and defaults. The bank is already negotiating with customers to freeze fees for the duration of the storm.
According to consultancy firm Macrobond, there has been a sharp contraction in the purchasing power of wages based on agreements in the eurozone over the past year. In the eurozone we are talking about 6.5% on average. But if we look at the data for Spain, the data is even worse, at 8.1%. Together with Italy (7.5%) the worst performing.
In practice, this translates into the fact that if there used to be families making ends meet, now the bills don’t come out. As a result, consumption decreases and the use of micro-credits and fixed mortgages starts to increase.
In economics, we use the Latin ceteris paribus to express that things will be as described if the factors remain constant. Specifically, we mean the fact that the war in Ukraine does not become even more radical and that an energy shock like the one of 1973 does not happen in the middle of winter. monetary policy of interest rate hikes implemented by the central banks, whether or not with immediate effect, curbs inflation (not just makes the price of money more expensive).
There is a worrisome issue on this subject. Since in the eurozone the intervention rate hike is carried out in a common way and for all countries, we could be in for a surprise in a few months: that the implemented policies would have an effect in Germany and the Central European countries, but not in Spain. If that happens, the expansionary fiscal policies envisaged in the general state budgets for 2023 could continue to push up demand and, with it, prices. And the loss of purchasing power would be unstoppable.
In any case, if the 2008 crisis hit companies and households with high debt and low deposits in banks, the situation in 2022 will not be the same. In my region, Andalusia in particular, deposits have risen to EUR 145 billion since March 2020. Almost 20% since covid-19 appeared. And sight and term deposits have grown by almost 24 billion euros.
The demand for precautionary money is increasing. Growing uncertainty, including the risk of a nuclear threat, has prepared us better. The situation cannot be compared with that of 2008. You did not see that crisis coming. Or he didn’t want to see it coming. This is anticipated and preparatory measures are taken. While we are doing everything we can to ensure that the landing will be soft, it will be short-lived and the economy will pick up in the second half of 2023. That being said, there are no surprises.
This article was published in ‘The conversation‘.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
