As was his intention, the hardening of monetary policy by the European Central Bank (ECB) is closing he credit faucet. The rises of the interest rates officers search make more expensive the loans and reduce your supply and demandto thereby cool the consumption and investment of economic agents and reduce inflation. The level of restriction, however, is exceeding expectations. He Bank of Spain ha delayed his prediction about the recovery of bank financing in the recent update of its macroeconomic projections. Now wait for the descent of loans that began in the last quarter of 2022 be extended until the third of 2024 (i.e. 24 months of decline). Afterwards they will remain practically stagnant for twelve months and they will not return recuperate timidly until second half of 2025.
The supervisory body, on the other hand, calculated in March that credit would remain basically stagnant in 2023 and would begin to grow by mid-2024. In Junerevised its estimates and predicted a decline until the third quarter of this year and a gradual recovery later. However, the drop so far this year it has been a lot more pronounced than I expected, due to the additional increases in typesthe deterioration of economic context and the increase in uncertainty. “Financing conditions are expected to be more restrictive than expected in the previous projections, due mainly to the increases in interest rates, but also to the greater influence that could have restrictions on credit offer“, explained the governor a few days ago, Pablo Herández de Cos.
The Bank of Spain, thus, now estimates that the credit balance will close 2025 two points above the level That I had in 2019when in March and June I expected a level of between five and six points higher than then. The institution makes these calculations based on information that it does not normally publish: the outstanding balances of notional and seasonally adjusted credit. They reflect the effect on loans of the net flow between new operations and amortizationsonce other factors have been discounted – such as write-downs, revaluations and reclassifications – and adjusted for the behavior of the credit at specific times of the year.
Less supply and demand
The fall in credit is due both to the banks like his customers, according to the latest survey of bank loans prepared by the Bank of Spain. On the one hand, the criteria of concession and conditions of the new loans have been hard for five quarters in a row. The entities perceive a higher risk of default and are affected by the higher cost of financing themselves and the lower availability of funds, which makes them reject more requests and impose higher types those who accept. On the other hand, the demand fell in the first semester “mainly” due to the increase in the cost of loans. Furthermore, companies anticipate less investmentswhile households are more pessimiststhey use their savings and have worse prospects for the housing market.
Behind all this is the rise in ECB rates to a unprecedented pace and scale: 4.5 percentage points from July 2022. The main type now stands at 4.5% (the highest level since May 2001), while the deposit facility (the interest with which the central bank remunerates the money it keeps in the banks, the more relevant in the current context) reaches a all-time high of 4%. As a consequence, the average rate of new mortgages in Spain it has risen from 1.38% at the end of 2021 to 3,75% last July, while that of the consumer credits has increased from 6.1% to 8,05% and that of loans to companies has shot up from 1.3% to 4,74%. This has caused the balance of credits to families has dropped a 1,6% so far this year (to 679,564 million) and that of companies and 2,4% (to 472,147 million).
The Bank of Spain’s forecast that credit will continue to fall is not because the ECB plans to continue raising rates. In fact, he has pointed out that he will maintain them unless there is an unexpected change in his inflation forecasts. Instead, it responds to the fact that each rate hike takes between 18 and 24 months in having all its effects on financial conditions, the economy and the price level. The Bank of Spain, along these lines, now calculates that the tightening of the credit supply will affect growth to a greater extent than I expected in June. Thus, the rate increases subtracted 0.6 percentage points from the Spanish GDP in 2022 and they will remove one point in 20231.2 points in 2024 and 0.3 points in 2025.
It is not a phenomenon exclusive to Spain. “The granting of credit in the euro zone there has been greatly reduced, both demand and supply. However, we are left with second stagethe transmission of this tightening of financing conditions to the economic activity real,” said Luis de Guindos, vice president of the ECB, a few days ago. As reported by the central bank last Wednesday, the full credit granted in the euro zone in August fell 0.2%turning negative for the first time since January 2015. The decline was driven by the contraction in loans to public administrations (-2.1%), which have been declining for six consecutive months. The credit to private sectoron the other hand, is still rising, but at a decreasing rate since a year ago and to the lowest rate since September 2015 (0.6%, with an increase of 1% in households and 0.6% in companies).
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