European consumers are slowing their demand for credit in the face of new interest rates

Eurozone consumers are far more pessimistic than policymakers on the state and prospects of economic recovery, according to the results of the European Central Bank’s (ECB) monthly consumer expectations survey.

The June survey clearly shows that consumers perceive and expect much bleaker prospects than forecast by the institute about price trends, employment trends, economic growth, the real estate market and access to credit.

In this regard, euro area consumers feel that credit conditions have tightened slightly over the past 12 months and their expectations for the next 12 months remain virtually unchanged. The percentage of consumers who say they have applied for a loan in the past three months – a figure collected quarterly – has fallen again, in this case by a percentage point, to 12.7% in April 2022, down from 13 .7% in January.

PHOTO/FILE – Euro

In Spain, The Bank of Spain Bank Lending Survey shows that banks tightened their lending criteria throughout the second quarter and that credit conditions in both Spain and the Economic and Monetary Union (EMU) deteriorated slightly. For Bank of Spain analysts, the tightening of supply is driven by the increased risk from rising inflation, the war in Ukraine and uncertainties surrounding monetary policy.

as it is logical The evolution of consumers’ borrowing intentions (including general sources of credit: loans, cards, etc.) emerge both from interest rate forecasts, which the ECB has already started collecting, and from their conditions and most importantly, the career prospects they have.

In this sense, Europeans expect mortgage prices to continue to rise over the next 12 months, at 4% compared to the 3.3% consumers themselves gave them at the beginning of this year. Over the same period, Euribor rose from -0.447% at the end of January to 0.852% at the end of June, an increase of 130 basis points.

Otherwise, Conditions for access to credit have tightened slightly over the last 12 months, as perceived by European consumers, whose expectations for the next 12 months remain virtually unchanged.

In Spain, where the big banks had an excellent first half in the mortgage market, demand has shifted to fixed-rate mortgages, which are subsidized according to the products that the consumer is taking out with the institution and are beginning to be sold by consumers expected amplitudes to oscillate. For example, for a subsidized 30-year mortgage, Spanish buyers have products with an APR of 4%, such as Banco Santander’s Hipoteca Fija Bonificada, CaixaBank’s 3.364% APR Hipoteca Casa Fácil Fijo, or Banco’s Hipoteca Fija Sabadell APR of 2.91%.

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AFP/DANIEL RONALD – Headquarters of the European Central Bank (ECB) in Frankfurt

Pessimistic outlook

In contrast, Consumer expectations for house price growth over the next 12 months declined slightly to 3.3%. After seeing some upward momentum in 2021, the ECB says “expectations have stabilized since October 2021.”

In the same order of ideas, 12-month economic growth forecasts have deteriorated since May, forecasting a -1.3% contraction. This pessimism transcends any age distinction. Likewise, consumers fear a deterioration in the job market, bringing the unemployment rate to 11.5%, close to where it was at the beginning of the year. In April 2022, quarterly data show that the expectations of unemployed respondents to find a job in the next three months fell to 23.8%, from 26.7% in January. The expected probability of losing a job in the next three months also fell to 9.5% in April from 10.3% in January.

In terms of income, expectations for nominal income growth over the next 12 months remain at 0.9%, although they are higher among consumers aged 18-34 and those on very low incomes (1.8%).

Perceptions of nominal spending growth over the past 12 months have risen steadily since April 2021, reaching 5%. Consumers with incomes below the median perceive the largest increase in nominal spending. Respondents’ expectations for future nominal spending growth are 3.9% over the next 12 months.

The poll shows a consumer (from the Eurozone) who perceives a higher price increase than the statistics reflect.

In order to, European consumers’ perception of inflation has risen sharply in the 12 months leading up to the month of June (date of the last sample); as well as their expectations for future inflation. The median perceived inflation rate over the period deteriorated by 6 basis points to stand at 7.2% at the end of June.

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PHOTO/Dirk Claus/European Central Bank – Christine Lagarde

At this time, the harmonized CPI for the euro zone was officially at 6.0%. And as sentiment continues, consumers expect prices to settle around 5% a year from now. That appears to contradict Christine Lagarde’s bank’s “optimistic” forecasts, which expect headline inflation to slow to 2.6% in 2023 and 1.8% in 2024 from 7.2% at the end of this year.

The Consumer Expectations Survey (CES) collects information on consumer perceptions and expectations in the Eurozoneand their economic and financial behavior.

The CES contains opinions and perceptions on a variety of indicators inflation, consumption, income, housing market activity and house prices, labor market conditions, consumer finance, saving and investing, financing and access to credit, the general economic outlook and other central bank issues.

The CES is based on questionnaires sent to around 14,000 consumers aged 18 and over in six euro area countries: Belgium, Germany, Spain, France, Italy and the Netherlands representing 85% of GDP and 83.8% of the population.

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