Savings: The Two-Sided Wildcard For Growth

Outlook: Pent-up demand or too elevated expectations?

Looking ahead, the key question for the economic outlook is whether the great rotation between savings and consumption in 2Q and 3Q will repeat itself or whether the latest increase in savings will be left unspent. The US and eurozone patterns differ significantly mainly due to two factors: the distribution of savings across different income categories and the sheer size of the income subsidies.

An important determinant of potential consumption is the distribution of excess savings across the different income groups. In theory, the propensity to spend is lower in high-income households than in low-income households. Against this background, the results of an ING survey give interesting insights. While in the eurozone between 30% and 40% of the higher-income households saw their savings increase during the pandemic, only around 20% of the lower-income households reported higher savings. In the US, these numbers are much more dispersed across the entire income range.

Changes in savings behaviour according to income

(Click on image to enlarge)

Source: ING International Survey

The size of the direct income subsidies has also been much larger in the US than in the eurozone. While in the eurozone even short-time work schemes mean at least a small drop in disposable income, the fact is that at least initially almost 70% of US unemployment benefit recipients earned more money due to the government support than when they were working. Additional payments of $1200 and $600 (with a third proposed payment of $1400) helped further improve the financial position of millions of households.

Fiscal stimulus more targeted to the lower-income US households should lead to a stronger boost of private consumption than the more indirect stimulus in the eurozone. Also, the second lockdown seems to have anchored fears of potential job losses in the eurozone, shifting involuntary savings to precautionary savings. This is not something we have seen in the US.

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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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