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Inflation and the war in Ukraine, added to the last blows of the pandemic, have become the main risk for the economy in the medium term. This has been highlighted once again by the Bank of Spain in its Spring Financial Stability Report, in which the institution warns that the damage that the rise in prices causes to the income of families and companies, together with a foreseeable rise in rates by the ECB, “could reduce the payment capacity of these agents.”
Faced with this situation, the agency has again pressured the banks to be extremely cautious when releasing the provisions with which they faced the pandemic. “The problem is the great uncertainty that we face,” explained Ángel Estrada, general director of Financial Stability, Regulation and Resolution of the agency, during the presentation of the document.
Although delinquency has been kept under control until now, thanks above all to the safety net woven by the Government during the crisis, the Bank of Spain has been following the behavior of certain sectors before the end of the aid and, above all, of the lacks. approved for credits guaranteed by the Official Credit Institute (ICO).
According to the data handled by the institution, the bank currently maintains 49,000 million euros in doubtful loans from the private sector, another 27,000 million in non-financial companies and another 22,000 in households.
In special surveillance (loans that have not gone into default but that show the first symptoms of it), there are already 94,000 million euros in total, of which 31,000 million belong to the household segment. And in the case of ICO loans, a segment that the Bank of Spain monitors with special interest, there are already 3,000 million euros in doubtful and 17,900 million in special surveillance.
As a whole, loans under special surveillance increased at rates of around 15%, while growth was also notable in refinancing, where “a good part were loans classified as doubtful.”
The Bank of Spain observes, once again, that they are the sectors most affected by the pandemic, and also somewhat in consumer loans, where the greatest risks are found. Specifically, they point to transport, restaurants, hotels, construction or agriculture. “Households with employment linked to these sectors and those with low incomes are also subject to special surveillance,” indicates Estrada.
Uncertainty
In the document made public this Wednesday, the body commanded by Pablo Hernández de Cos also warns of the vulnerability that high public debt entails for the Spanish economy. Especially given the process of normalization of monetary policy, which has already generated a rise of more than 150 basis points in the 10-year interest rates of new Spanish public debt issues since January 2021.
It is true that average debt costs have fallen in recent years, as debt currently maturing was issued at higher interest rates. But the current high levels of deficit and debt “make the Spanish economy vulnerable to the deterioration of financing conditions and limit the fiscal space to react to the materialization of new risks.”
Under this scenario, the Bank of Spain insists on the urgency of a medium-term fiscal consolidation program “for its application once the recovery is solid”. And it does so just a few days before the Government maintains the update of the Stability Plan to Brussels, whose term ends on April 30, and where a downward revision of growth estimates is expected, which until now remained at 7% for this year.
public accounts
In its latest forecasts for the Spanish economy, the Bank of Spain already pointed to a moderation to 4.5% in 2022, “mainly due to the impact on private consumption of the persistence of inflation at high levels, which has been seen aggravated by the war in Ukraine The problem, as the Stability Report points out, is that the persistence of high inflation “is eroding family income and reducing the dynamism of the recovery of their consumption.”
Therefore, if the impact of the rise in energy ends up being fully transferred to final prices, “the higher wage demands could trigger second-round effects of considerable intensity, which would translate into a more pronounced and prolonged inflationary rise than expected.” anticipated so far.” the document says. “This would mean a greater erosion of real household income, which would end up weighing down their consumption, and the demand for investment and employment by companies,” they insist.
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