ANNUAL REPORT 2008 - Polymer Bank Notes of the World

The annual growth rate of consumer credit alsodeclined, falling to 1.5% in December 2008,around 4 percentage points lower than at the endof 2007. Over recent quarters the annual growthrate of consumer credit has declined in line withfalling consumer confidence and the gradualmoderation in private consumption in the euroarea. Moreover, the results of the Eurosystem’sbank lending survey indicate that creditstandards applied to loans for consumptioncontinued to tighten in 2008, in line withdevelopments in the fourth quarter of 2007,owing to the worsening expectations regardinggeneral economic activity and the deteriorationobserved in the creditworthiness of borrowers.MFI interest rates on consumer credit, whichremained well above those on loans for housepurchase in 2008, increased by 56 basis pointsbetween December 2007 and November 2008,thereby dampening demand for consumer credit.They then declined, with the rates observed inDecember 2008 standing 15 basis points abovethose of December 2007.HOUSEHOLD INDEBTEDNESS STABILISEDIn the second half of 2008 the protractedmoderation observed in the growth rate oflending to households and the ongoing increasein disposable income led to a slight decline inthe ratio of household debt to disposable income,which was estimated at around 92% in thefourth quarter (see Chart 17). The same patterncan be observed for the ratio of debt to GDP,which, according to data from the euro areaintegrated accounts, declined to around 60% inthe fourth quarter of 2008. That being said, thelevel of indebtedness of euro area households isrelatively modest compared with countries suchas the United States or the United Kingdom.The moderation of euro area households’indebtedness has helped to stabilise theirexposure to changes in interest rates, incomeand asset prices. It is also worth mentioningthat there is a large degree of heterogeneity inthe indebtedness of households across the euroarea. In particular, higher levels of risk apply tohouseholds in those parts of the euro area wherethe economic slowdown is more marked orChart 17 Household debt and interestpayments(percentages)9585756555452001interest payment burden as a percentage of grossdisposable income (right-hand scale)ratio of household debt to gross disposable income(left-hand scale)ratio of household debt to GDP (left-hand scale)1.52002 2003 2004 2005 2006 2007 2008Sources: ECB and Eurostat.Notes: Household debt comprises total loans to householdsfrom all institutional sectors, including the rest of the world.Interest payments do not include the full financing costs paid byhouseholds, as they exclude the fees for financial services. Datafor the last quarter shown have been partly estimated.there are still signs of overvaluation in housingmarkets.At the same time, although the level ofhousehold indebtedness stabilised in 2008,past increases in lending rates for householdsled to a further increase in households’ debtservicing burden, measured as interest paymentsplus principal repayments as a percentage ofdisposable income. Indeed, the interest paymentburden is estimated to have reached 3.8% in thesecond half of 2008, up from 3.6% at the endof 2007. This also exceeds the previous peakobserved in 2001.THE COST OF EXTERNAL FINANCING FORNON-FINANCIAL CORPORATIONS INCREASEDCONSIDERABLY IN 2008In 2008, amid the financial market turmoil,the real cost of external financing fornon-financial corporations in the euro areaincreased considerably compared with recent4.03.53.02.52.0ECBAnnual Report200849