In Portugal, from the mid-1990s to 2007, the very substantial easing of liquidity constraints – arising both from the interest rate decline and access to a huge wholesale market for funding – led to booming private sector credit and a fall in households’ savings rates.
From 1995 to 2007, private sector debt almost doubled as a percentage of GDP (averaging 187.2% of GDP during this period), while households’ savings rates almost halved. The increase in indebtedness was mainly used to finance consumption and low-return investments, mostly in the non-tradable sector.