01.09.2020  The impact of the COVID-19 crisis on financial stability Closing address to the seminar “The financial system in the COVID-19 crisis. Challenges and commitments”, Universidad Internacional Menéndez Pelayo, organised by the Spanish Financial Press Association Pablo Hernández de Cos Governor  Good afternoon ladies and gentlemen. It is an honour and a pleasure to participate once again in this summer course organised by the Spanish Financial Press Association. It is clear that the scope of the pandemic and its impact on the world economy are very extensive. Following a 5.2% decrease in Q1, with respect to the previous quarter, Spanish GDP fell by 18.5% in Q2, when the restrictions linked to the state of alert were at their height. These declines represent the greatest contraction in economic activity in our recent history. An improving path has been seen during Q2 and Q3. However, this recovery is incomplete, and uneven across sectors and agents. It is also subject to a high level of uncertainty owing to the doubts as to the course of the pandemic itself, as shown by the fresh outbreaks. It therefore seems clear that some of the pandemic's effects will be long-lasting.
However, there was some cross-regional variation and the indicators of the overvaluation of house prices showed values close to equilibrium.6 It should also be borne in mind that the weight in mortgage lending of highly leveraged transactions has been much lower in the post-2008 period, and that the mortgage loans which survived the global financial crisis have credit conditions that can generally be considered prudent, and are closer to reaching maturity. All these developments better position this sector to withstand the current crisis. In any event, this sector is inevitably also reflecting the impact of the health crisis. Even before this shock, the housing market had entered a phase of gradual slowdown, both in terms of activity and transactions and of prices, after the marked expansion of prior years, once the adverse effects of the financial crisis had been overcome. This outlook was profoundly affected by the declaration of the state of alert due to COVID-19, with a 6  See https://www.bde.es/f/webbde/GAP/Secciones/SalaPrensa/NotasInformativas/20/presbe2020_49en.pdf. 8  particularly sharp slump in transactions in the second half of March and in April. In subsequent months, a gradual, albeit partial, recovery is estimated to have taken place, once the restrictions on movement had been lifted and as the house purchase process gradually began to operate as normal. In effect, the lockdown made it much more difficult to conduct the process of buying or selling a home.