However, the possibility of reduced access to external funds, plus the increase in global risk, put pressure on internal financial conditions, causing a significant increase in interest rates and lending standards. At the same time, when future earnings became more uncertain, households and firms significantly reduced their demand for new credit, as revealed by the Banking Credit Survey that the Central Bank conducts on a quarterly basis. Overall, the tightening of financial conditions was not so severe as to hinder banks’ access to external credit or their proper functioning domestically. This was possible also because of a set of measures adopted by the Central Bank and the Ministry of Finance to ensure the proper functioning of the financial system. Nonetheless, due to the higher uncertainty, the sensation that the world economy might enter into a significant depression with huge losses of wealth triggered an unprecedented erosion of global confidence. Growth forecasts began adjusting at great speed. Undoubtedly this hit the behavior of households and firms hard around the world, which stopped their spending plans, or put them on hold indefinitely. Consumers’ and entrepreneurs’ expectations indicators showed a profound weakening in the last quarter of 2008 (Figure 8). A look at durable goods consumption indicators reveals the steep fall in sales levels (Figure 9). All this takes me back to the previous point in my presentation. The dramatic increase in uncertainty that began in September of last year altered people’s behavior substantially, leading to an abrupt and sudden paralysis of the demand for durable goods.

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