It will be a year of balance sheet adjustments across banks, non-financial companies and private households. This could be a further drag on investment and consumer spending, already negatively affected by very low global demand, tight financing conditions and, in the case of private consumption, a further deterioration in labour markets.
High interest rates in the early 1980s, in response to the Great Inflation, contributed to the stress.3 Despite the reductions in profits and liquidity, capital spending remained elevated in the early 1980s, and was financed with higher levels of debt made possible by rising land values.