Why is there more construction credit if activity is stagnant? inflation is the answer

In the midst of the crisis that exists in the construction sector, a phenomenon has been presented that has caught the attention of specialists and it is referring to the fact that there is a greater granting of credit for this industry; however, the activity is stagnant.

According to data from the Bank of Mexico (Banxico), the balance of financing granted by commercial banks to construction companies It was 506,062 million pesos as of last October, that is, a growth of 12.49% compared to the 449,874 million pesos reported in the same month of 2019, before the declaration of the health pandemic.

In contrast, the value of the production of construction companies It reached 239,912 million pesos during the first 10 months of the year, that is, barely a 3.3% growth compared to the same period in 2021, but far from what was registered in previous years prior to the start of the Covid-19 health emergency.

For example, in the first 10 months of 2019 the production value of the construction companies reached 292,319 million pesos, so what was achieved by the construction firms in this 2022 it represents a drop of 17.93% compared to three years ago.

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For Carlos Serrano, chief economist at BBVA Mexico, this contrast between the construction credit with the production value of the industry can be explained by the issue of inflation and the high costs that companies have to assume. construction companies.

“Some construction companies They took credit even though the rate is going up, anticipating that it could go up even more,” Serrano said.

Impact

According to the specialist, the construction It is one of the sectors most sensitive to increases in Banxico rates, since financing to the construction companies It is called a short-term variable rate and any decision by the central bank immediately impacts this type of credit.

“We are seeing this problem of higher costs of inputs and higher costs of construction creditwhich does move almost one to one from the monetary policy rate,” Serrano said.

Despite this context, Serrano noted that, facing a period of high inflation in the construction themecompanies, especially those dedicated to housing construction, seek more financing to face the increase in the values ​​of the inputs necessary for their activity.

“Building has stalled even though there are more creditthis is partly explained by the higher costs of the building. Although activity does not increase, costs do increase and therefore companies have to resort to more credit,” Serano said.