Interest rate increase, how does it affect the economy of Galicians?

He GDP from Galicia he was from 63,230 million euroswhich places the Community in sixth place in importance in Spain compared to GDP volume.

According to the Galician Institute of Statistics (IGE), the economy of Galicia grew in 2022 by around a 3.8%almost two points more than what he did in 2021.

Despite these encouraging figures, there are some dark clouds holding back the growth of the economy in Galicia and Spain in general: rise in interest rates. In this article, we will analyze the effects that this increase had on citizens, experts and businessmen.

Family financing will be more expensive

The direct effect of rising interest rates is directly visible in financingespecially in a family environment in relation to mortgages.

It must be taken into account that many mortgages directly depend on Eurybor and this index started to grow several months ago. It will close in February with 3.534%which is the highest recorded data since November 2008.

If we put this value into practice, we will discover a chilling fact: those variable mortgages awaiting review in March will see their repayments rise by around 187 and 562 €; that is, a large increase in 50.8%something unattainable for many families.

The data it handles Spanish Mortgage Association (AHE)dating from the end of 2021, show that in Spain there are approx 5.5 million active loans; of which ¾ loans with variable interest. Of that amount, 9 out of 10 are related to Euribor.

Those who have taken out a fixed mortgage will be exempted from the mentioned revision. But… What happens to those mortgages that are now formalized, both variable and fixed? These increases will be represented in the mentioned mortgages because the banks have changed their conditions due to the new panorama.

In summary: seeking financing will be more expensivealthough there are some banking entities that continue to maintain good conditions, as is the case with norwegian bank.

Asking for a loan will be more expensive

But this does not only affect families who want to apply for a mortgage, but also all individuals, professionals or companies who need a loan.

Banks warn that the current flow of liquidity is low, so interest rates have risen. Today, current average interest on personal loans is from 7.67%Meanwhile he APR have an interest in 8.91% average. This is the last data he published Bank of Spain.

Faced with such high interest rates, loan seekers will need to read the terms and conditions and be very clear about what they will end up paying.

The delinquency rate could skyrocket

It is true that the level of delinquency has not yet changed too much to the extent that it poses a danger, but everything indicates that this situation will change.

The default ratio is currently close 3.88%which is one of the lowest levels we have experienced since 2008. As the economic situation changes dramatically and many families begin to feel the pressure, it is to be expected that increase the delinquency rate for the next months.

It is one of the most valued criteria when predicting a recession, but many economists assure that it will only be an obstacle and not something that could drastically harm the Spanish economy.

consumption is falling

If prices rise and financing becomes more difficult, citizens have no choice but to do so reduce consumption.

Important purchases are prioritized, and whims are left for a more favorable moment. For example, travel agencies, hotels and related centers are the main businesses that will experience this reduction in spending.

It must be remembered that Spain can opt for European funds as a resource to reduce the fact that consumption is being reduced. Not that it’s much help, but it can soften the blow.

The state also bears the consequences

In addition, the rise in interest rates also affects state because you will have to pay more to finance yourself. Until now, the interest on the incurred debt was low, so it was not a concern.

With this increase, the interest will be much higher, so the debt increases even more,

These are the consequences interest rates in Galiciaalthough the consequences are felt throughout the country.