Net household financial wealth will fall to 120% of GDP by the end of 2022, “the level of a decade ago”.
The Central Bank of Chile released its Financial Stability Report (IEF) for the first half of 2023 on Wednesday.
This document provides a vision of key risks, vulnerabilities and mitigations for the country’s financial stability.
He said financial conditions were deteriorating globally, making future developments more uncertain than usual.
“After a long period of low interest rates and ample liquidity, the monetary adjustment has exposed the vulnerabilities of some advanced economies’ banks,” he said.
household financial situation
Household finances have deteriorated over the past two years, with savings plummeting to -0.7% of GDP.
“As reported in the thematic chapters of the report dedicated to the situation of households, the economic support measures implemented during the pandemic, both in their nature and magnitude, have resulted in temporary and unprecedented levels of household liquidity. led to an increase in ,” BC noted.
This has boosted aggregate consumption, temporarily reducing debt and public defaults, he added. However, the imbalance created by the sudden and sustained increase in total consumption was “significant”.
“One of them is high and sustained inflation,” he said.
Household net financial wealth will also fall to 120% of GDP by the end of 2022, “reaching the level of a decade ago.”
“Pension withdrawals, which totaled 18% of GDP and accounted for about two-thirds of the increase in liquidity, not only adversely affected household savings, but also increased long-term funding costs and reduced fiscal capacity. A system that softens the impact,” Bank stressed.
Confidence in individuals continues to weaken. Compared to the previous year, consumer debt declined in real terms in April, while mortgage debt showed a modest increase.
He added, “Amidst higher interest rates, increased use of lines and credit cards has resulted in a tighter economic situation for low-income earners and an increased economic burden.”
This has led to a more pronounced increase in consumption defaults, which are just centered on revolving debt.
“Higher-income households are maintaining more liquidity, increasing their mortgage debt, which, to a lesser extent, is leading to higher defaults,” he said.
company’s financial situation
Corporate debt and bank defaults are at pre-pandemic levels. At the end of 2022, financial conditions generally normalized towards 2019 levels, although exchange rate discrepancies remained limited for large companies.
The IEF added that annual volatility in commercial credit has continued to decline in recent months, while defaults have trended upward.
“The increase in delinquencies continues to be concentrated in the commercial, construction and real estate sectors; small and medium-sized businesses, and companies that have opted to reschedule their debt and FOGAPE credits,” the report said.
It should be noted that the construction and real estate sector continues to languish, facing declining market dynamism and tightening funding restrictions for both real estate projects and mortgages.
Source: Biobiochile
