Nova workboard

a blog from young economists at Nova SBE

The financial crisis in Portugal

Consumers have been misled by the easy credit and have not been giving proper importance to their budget constraint. Since there was a need to maintain consumption that is mainly motivated by our society of “buy and throw away”, people started to borrow money instead of consume only what their income allowed.

The crisis has brought limits to this process since banks no longer facilitate credit, requiring more and more big collaterals. And further consumers see their income decrease due to lump-sum taxes imposed by the government (increase in IRS or the decrease of retirement subsidy).

As a result, consumer budget constrains have changed. The utility give to the possibility of having essential goods is now higher than before because when people believe that they have things for granted they do not give them the proper importance. Besides, some data shows that the consumption of essential goods like fresh products registered the higher increase among others since the second trimester of 2012. The crisis had also an impact on the type of goods consumed; while in the past the choice was based on prices and quality (that one is generally more important) nowadays the price is the principal criteria of choice. This can be seen in the increase in the consumption of cheaper substitutes, the generic brand, the consumption of this brand in terms of % volume of sales in grocery stores, super and hypermarkets increased from 41,7% in 2008 to 51,7% in 2012. Therefore the increase of the consumption of inferior goods increased given the lower income.

However, as in all situations, there are always those who are never affected. For instance, even during this crisis, there is this news about the fact that very expensive car brands (BMW, Mercedes, Jaguar) have seen their sales increase, while brands as Honda, a Suzuki, a Volkswagen, a Peugeot and Citroen (cheap brands) have seen their sales decrease. 

Market sectors were also affected. We can see this in the change of the house market that in the past was viewed as a growing market. Nowadays the value of the houses and even their rents are decreasing due the lack of demand (due to the lack of income). Data shows that house’s price only showed a very fast growth until 2003 and then between 2003 and 2008 there was a period of stabilization. Since 2007 the number of start houses also decreased. Regarding the demand for houses, some data also show that while in 1998 more than 30 people were looking for a house to buy, in 2012 this number droop dramatically to 3.

However, some people benefit with this situation given the fact that this is a time of opportunities to those who have money to invest, once they benefit from the distress of those which need liquidity making very good business.

 

 

 Andreia Parreira 646

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Author: studentnovasbe

Master student in Nova Sbe

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