Home > Uncategorized > Graph of the day. Unemployment as a 2 year leading indicator for bank’s bad loans

Graph of the day. Unemployment as a 2 year leading indicator for bank’s bad loans

On Twitter, @cigolo published an interesting frightening graph on Spanish and Italian bad bank loans. The Great European debt crisis is still intensifying. After some tinkering it turns out that unemployment is a rather robust ‘leading indicator‘ for these bad loans.

The economics are of course common sense: unemployment leads to lower incomes which leads to bad loans, the lag can be explained by households receiving benefits for some time as well as draining down savings. Unemployment and lower income clearly is not just and ‘incentive’ for the unemployed, it also cripples the economy.

Differences between Italy and Spain are large. For Spain I used an (unemployment -8)/1,5 metric; for Italy I used an (unemployment – 3) metric and while the relationship is remarkably stable in Spain it shifts somewhat in Italy. The difference might be caused by relatively high ‘additional’ unemployment in Italy. Never mind – unemployment showed large increased during the past two years… (datasource: Eurostat).

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