Savings: The Two-Sided Wildcard For Growth

In the first lockdown, surging savings rates across the Western hemisphere were mainly the result of involuntary savings. As a result, the reopening of economies led to an almost full reversal of the excess savings into consumption. In 2021, the rotation from savings into consumption could be much more uneven on both sides of the Atlantic.

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The savings-consumption rotation during the first lockdown

The first lockdown saw an unprecedented surge in savings in the US and Europe. 'Involuntary savings' was the buzz phrase of the moment. With people suddenly sitting at home, retail stores, restaurants, bars and cultural events all closed, savings rates increased significantly. Planned vacations had to be cancelled, also adding to the increase in savings. The fact that these savings were mainly involuntary is also reflected in the relatively muted fall in consumers’ willingness to spend. With the reopening of economies, savings dropped and consumption surged. In fact, the flow of savings equalled the flow of consumption almost entirely in the second and third quarters.

Did you save more or less?

Source: ING International Survey

In the eurozone, short-time work schemes helped support household incomes. Unemployment rates remained relatively stable and the fear of potential job losses was high but short-lived. Savings rates across the eurozone surged on the back of involuntary and precautionary savings. According to European Commission surveys, the assessment of households' own financial situation worsened but only to historic averages and not below. Interestingly, the intention to save did not drop again in the third quarter, while excess savings were reduced and private consumption surged. The countries hit most by the crisis saw only half of these excess savings in 3Q actually spent in that quarter. In all countries, the savings rate remained higher than before the start of the crisis. This suggests that a larger part of the population increased savings as a precaution and not simply due to the lack of spending opportunities.

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Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does ...

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