both interest increases who approved ECBbringing the official price of money in just two months from 0% to 1.25%, will take on new meaning sledgehammer for many accounts Alicante homes and businessesAdded to this is that it is caused by inflation. While the ultimate goal is precisely to stabilize prices and avoid greater evils, the auditor’s decision is still an additional cost to anyone who needs financing, and this, once fully transferred to the markets – either through variable revisions – with the rise in prices of interest-rate loans or new fixed-rate loans, Up to 400 million more annual interest For all companies and families in the province.
And this is due to the increase in the cost of loans. private debt volume group of people from Alicante far from maximum marked just before the bursting of the housing bubble, June 2008. At that time, the outstanding balance of loans pending in Alicante 56,972 million 73% more than Euro 32,963 million The latest data recorded by the Bank of Spain last March.
A 1.25% increase in interest over this total amount, up to 412 million It should be noted that some of the minority corresponds to fixed rate loans and will not be affected by this, and another with longer-term revisions will take time to arrive.
In any case, the bill is not small and presents a new hurdle for companies already facing other challenges beyond its most immediate consequence, the increase in mortgage payments. “The rate will be increased” increase costs financial and will further reduce margins and availability of resources for other substances”, Director of Economics and Analysis of the CEV regional employers’ association, Ricardo Miralles.
More resources to pay off the public debt
The Labor Cabinet of the Alicante Chamber agrees that the rise in interest rates will ultimately lead to lower demand for credit, which will lead to a decline in consumption and investment, which will put downward pressure on prices. But do not forget that these increases will also mean an increase in the cost of public debt, which means the Government will have less money for other items.
He is of the opinion that the increase in interest rates alone will not be enough to threaten the sustainability of companies. The problem is that it contributes to the “attack” caused by the pandemic, the “unsustainable” increase in costs due to increases in electricity and raw materials, and now declining demand expectations. “Therefore, there are a number of companies left behind by a perfect storm, and this is there will be serious continuity problems“, says the expert.
Special mention deserves the so-called zombie companiesthat is, those who, as the director of Cooyuntura de Funcas remembers, have managed to survive in recent years only thanks to the insistence of extraordinarily low interest rates, and are now in trouble, Ray Torres. Of course, Torres points out that these represent a very small percentage of productive fabric, since the general trend since the previous crisis has been to reduce debt as much as possible.
less investment
One of the results that can be seen is curb investmentsthat is, in the development of new projects that will affect the creation of new jobs. “Much will depend on profitability. this is predicted. If we talk about a project where 10% profit is expected, it will continue, but companies will think more about it in those with more adjusted figures”, explains Ineca, Director of Studies at the Alicante ‘think tank’, Francisco Llopis.
In any case, the Funcas Situation Director thinks that companies generally have more margin now to cover the higher cost of financing. familiesSelling prices are rising faster than wages, as core inflation data show. Therefore, it will be financial those who suffer the most at the moment.
In this context, Raymond Torres points out that in addition to the speed of the new increases announced by the ECB, the key point will be employment. “If they hold the business, households will tighten their belts and move on. The problem is if they lose their income,” explains the economist. So it will be this fall, when they actually make money. labor reform put to the test and whether new mechanisms and other measures to replace ERTEs will be as effective as they were during the pandemic.
Less housing demand for first residence
From the Provincial Association of Regulators (Provia), they think the increase in rates will have a limited impact on sales of second homes (many of which are currently being built) as most operations are paid for in cash or with little funding. its general secretary, Jesualdo Ros. In his view, the problem will be with permanent home buyers who tend to take out mortgages. In this way, it is expected that there will be a slowdown in such projects.
According to Toni Mayor, Hosbec mayor, hoteliers fear that the rise in monthly wages many families in Europe will face will mean “less money is available to travel, which could affect tourist demand”. It is observed that a certain loss of speed has been perceived in recent weeks due to problems arising from inflation.