The capital buffers we have asked banks to build up in recent years are now there to absorb those losses. But, of course, that resilience is not unlimited.
The loss of output and earnings associated with high unemployment also reduces government revenues and increases spending, thereby leading to larger deficits and higher levels of debt. The recent increase in gasoline prices, which reflects both higher crude oil prices and wider refining margins, is hitting family budgets. However, overall inflation remains low.