This situation could worsen in the face of a more adverse economic scenario resulting from slower economic activity or increased financial expenses. The latter could be seen if the increases in funding costs were transmitted to the local lending rates, thus affecting firms needing to renegotiate their liabilities. Our estimates, however, suggest that a deterioration in activity would have a greater impact on firms’ financial strength than would an increase in financial expenses. Household risk indicators remain fairly stable, in line with the gradual adjustment of the labor market. Aggregate household indebtedness continues to increase because of a higher share of mortgage loans. The lower interest rates seen up to September helped to maintain the aggregate financial burden relatively stable around 15% (figure 15). At the same time, delinquency in both consumer and mortgage loans remained bounded with no major variation from the previous half. Some exceptions include consumer loans granted by Clearing and Family Allowance Houses and bank mortgage credits in the northern regions, where credit quality has fallen. Thus, one risk identified in the FS report is that a worsening of labor indicators could hinder the repayment capacity of households. Turning to the real estate sector, both housing prices and mortgage credit have moderated their growth rates. Several housing price indicators posted lower growth rates than in previous quarters, reflecting the dynamics of their components (figure 16). Data from real estate companies reporting to the SBIF show no increase in withdrawal rates at the third quarter of 2016.

Financial conditions facing the emerging world have worsened, and there is the risk of a sharper deterioration. In China, despite stabilizing activity, risks remain, especially in its financial system. In Latin America, there are still economies in need for adjustments and others making changes that could create some turbulence. At home, the inflationary surprises of recent months concentrate in prices linked to the exchange rate and foodstuffs, but some delay in inflation’s convergence to 3% cannot be ruled out, especially if capacity gaps widen more than forecast. Meanwhile, the evolution of the peso will continue to be subject to a high degree of uncertainty, which could affect shortterm inflation in either direction. Regarding activity, the most recent figures put a note of caution, even considering the volatility of month-to-month data and that demand-side information at hand has been more favorable. Also, the deterioration of external financial conditions could have a stronger than anticipated impact. Conversely, the baseline scenario considers that the level reached by the price of copper in recent weeks will not remain over the projection horizon. This, because there has not been any corresponding change in its fundamentals and because its increase has gone counter to the evolution of global interest rates and the value of the dollar. However, it is possible that the current prices of the metal will last for longer than expected, which could boost domestic spending once again —for example by an earlier recovery of investment in the sector— or because it could improve confidence sooner.