Household Vulnerabilities, Financial Stability, and the Role of Policies in Portugal

Download or read book Household Vulnerabilities, Financial Stability, and the Role of Policies in Portugal written by Ms. Laura Valderrama and published by International Monetary Fund. This book was released on 2023-07-11 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the pandemic, developments in the real estate market in Portugal suggest that housing vulnerabilities have increased. Rising living costs and interest rates are stretching household finances which could cause an increase in defaults or force households to cut back on consumption. Simulation results suggest that, under adverse conditions, almost half of all households could be financially stretched with a disproportionate effect on lower income households. In addition, one third of consumers may need to adjust spending although the estimated reduction in aggregate consumption is limited. The impact on the banking system is manageable but a sharp house price correction could have a material impact on capital buffers. Policy support aimed at tacking the cost of living crisis could help mitigate some of these risks.