Mon. Oct 21st, 2019

Evolution of household finances | Economy

The clouds, or rather storms, that on the world economy have been unleashed since the beginning of 2018 – fundamentally by the commercial war – sooner or later had to impact on the Spanish economy, and thus it has already begun to show in recent GDP and labor market data.

In this context, it is worth analyzing the extent to which households have internalized this deterioration of expectations, and transferred to their consumption and savings decisions, and the recomposition of their financial assets and liabilities. The distribution between consumption and savings has already registered a significant change in the first half of 2109, as consumption has almost halved the growth rate that it maintained in 2018 which, together with a positive behavior of the gross disposable income, It has triggered the savings rate already in the second quarter at rates close to 7%, compared to that minimum of 5% recorded in much of 2018.

This increase in the savings rate, in which a great precautionary component can be identified in the face of an uncertain future, has undoubtedly been translated into a clear recomposition of family finances, both in its liabilities and in its financial assets. In the first case, the significant slowdown in the granting of credit stands out, both for the acquisition of housing and for consumption. In real estate there has been a growth rate of 15% in the first half of 2018, at rates of around 4% in mid-2019. Even more intense has been the slowdown in consumer credit, where growth rates in concession have gone from 17% to a recent 1.5%. Both slowdowns that can be attributed mostly to a contraction in the demand for credit, and barely to supply restrictions by financial institutions, eager to grow to compensate for the damage of negative rates.

And in parallel to this lower demand for credit, the greater propensity to save by households has also translated into a significant rebound in their placements in financial assets. Of these, and in the absence of knowing a greater breakdown with the financial accounts of next publication, it is worth noting that the sum of bank deposits and investment funds has registered a significant acceleration in its net inflows, with almost 60,000 million accumulated in twelve months until June, which represents 4% year-on-year, when a year ago that net flow of financial savings barely grew to 1.5%.

That is not the most desirable scenario for financial institutions, which would rather prefer to grow in credit than in client resources to those who, with the negative rate policy, cannot be remunerated at all, and perhaps we should consider discouraging , just as the ECB does with the banks themselves by penalizing their reserves.

Angel Berges and Desirée Galán are professors of AFI-School of Finance


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