The bankruptcy of the Silicon Valley Bank (SVB) in the United States has surprised the economies of the Eurozone in full fight against inflation and slowdown in activity, and having to face at the same time an increase in financing costs that had never occurred before since the creation of the euro. Spain faces the scenario of financial turbulence in a different position from that of the 2008 crisis, with a healthy banking, and a “reinforced” supervisory and regulatory frameworkas the first vice president, Nadia Calviño, recalled from Brussels at the gates of the Eurogroup meeting that has concluded the stage of “open bar” for public spending to contain the pandemic and the consequences of the energy crisis and aggravated prices for the war in Ukraine.
The ‘number two’ of the Government also launched in the last hours a message of confidence regarding the “positive” outlook for the national economy, which has just recorded “strong” growth in the last two years (with a 5.5% increase in GDP) and which will remain in an expansive phase this year. The experts consulted agree that an isolated crisis of the US BLS will have a very limited impact in macroeconomic terms for Spain which, in principle, is postulated as the economy that will advance the most among the largest in the euro.
Pending how events evolve in the coming weeks, if the biggest bank failure since the Great Recession in the United States stays that way, in a controlled episode, “the macroeconomic impact will be very small” in the opinion of Santiago Carbó, professor of the University of Valencia and director of Financial Studies at Funcas. If the contagion spreads to other banks (beyond Signature Bank, First Republic Bank or Western Alliance, which have already been affected) and new entities appear that with the sharp rise in interest rates begin to see that their portfolios have lost value… If If that happened and more mistrust was generated, “we would be talking about something else,” adds Carbó in statements to this newspaper.
The ECB or the Fed will not vary their roadmap too much
At first, it seems premature to think that the Federal Reserve or the European Central Bank are going to change their road map in relation to interest rates due to this episode, unless the crisis ends up causing a generalized panic in the markets. However, this Yes, it can be a factor that contributes to slowing down the pace of the climbs, to delay them or to lead the issuers to reflect. The ECB has perhaps a more complicated ballot to announce unexpected twists of the script with an annual rate of CPI at 8.5% in the euro zone in February and core inflation at its highest since records are available. The rate that excludes energy prices and unprocessed food prices from its calculation stood at 6.5% last month, according to Eurostat.
“This very rapid rise in the price of money is causing some imbalances that a few weeks ago we did not think would take place,” says another of the sources consulted. If the problems or doubts persisted, even if they were not serious or materialized in a panic, perhaps they would force the central banks to react with a view to upcoming meetings -not the immediate ones-. That expectation is what has allowed the 12-month Euriborthe interest at which euro zone entities lend to each other for one year and the main reference for variable-rate mortgages in Spain, record its biggest daily drop on Monday since last October and leaving behind the maximum of fourteen years that he marked last Friday -breaking a streak of increases that seemed unstoppable-.
For now, Spanish entities are facing the US SVB episode with the default rate at 3.54% at the end of last year, according to the Bank of Spain, its lowest level since December 2008. Families and companies are also are in a better situation, with a lower level of debt. And this, despite the rise in rates to cope with inflation has not been fully reflected in lending to the private sector, since this process occurs with a certain delay. “As long as employment does not suffer and companies are not in a bad situation in general, delinquency will pick up somewhat, but it should not be worrying,” adds Santiago Carbó.
Mortgages, Euribor and the ‘base effect’ on inflation
In reality, a scenario in which the rate of increase in the price of the euro by the ECB softens somewhat would not be bad for Spain, which was less exposed to the crisis (already attenuated) in the price and supply of natural gas, but that could be “more vulnerable to steeper rises in interest rates”, as pointed out by the Fitch rating agency. The rating agency emphasizes that the stock of residential mortgage debt began to rise again in 2021 after a decade of decline and that there is a large proportion of variable-rate mortgages (the Government estimates that 3.7 million mortgages are indexed to the Euribor ) despite the fact that fixed-rate loans have been gaining weight in recent years.
There is also the fact that our country experienced energy-driven inflation and subsequent disinflation earlier than the other major European economies. Energy is already helping to moderate the CPI annual rate and it is expected that, due to the base effect, it will begin to decline strongly from March. Headline inflation tightened again in February to 6.1%, according to the advance published by the National Institute of Statistics just a few weeks ago. “We expect a gradual disinflation in 2023”, they add from Fitch. In the New York firm they have lowered their growth forecasts two tenths this year to 1.2% and six tenths of next year to 1.8%. Despite this, they explain, Spain would continue to be the best-performing economy in the euro area, although to date it has experienced a weaker economic recovery after the pandemic.
