Wednesday , May 12 2021

Households were saving wildly, more than in 2008. Most likely, that money will disappear



The pandemic has brought with it a change in consumer habits that has been affecting the stability of the domestic economy for more than a year. It is one of the world’s household saving trends. Consumers in almost every region of the planet have amassed extra millions since Covid became a part of our lives. A form of “repressed savings” driven by insecurity, while institutions and many companies hampered their services.

But with the vaccine at the door and almost reviving consumption, the road has been paved for a sharp jump in consumption. And all indications are that the flood of purchasing power that has accumulated at that time in the economies will start in 2021 and 2022.

Excess savings. One figure sums up this phenomenon well: 4.5 trillion euros. What is it? What consumers around the world have accumulated into additional savings since the start of the pandemic. A hefty amount compared to the 2019 consumption pattern and the equivalent of more than 6% of the world’s gross domestic product, according to estimates by Moody’s Analytics. Even in the 2008 crisis, households were not so afraid of spending what was left on their payrolls.

Wander when we go out. But many experts suggest customers will be willing to re-spend as soon as shops, bars and restaurants reopen when restrictions on controlling the spread of the virus are relaxed. In the first quarter of this year, the Conference Committee’s Global Consumer Confidence Index reached its highest level since the beginning of the record in 2005, with a significant increase in all regions of the world.

There are reasons. Mark Zandi, chief economist at Moody’s, explained in a Financial Times report that “the combination of releasing significant backlog of demand and excessive savings will boost consumer spending around the world as consumer spending grows. Countries approach the herd immunity and open up. “If consumers spend about a third of their surplus savings, they would increase GDP by just over 2 percentage points both this year and next.

How do you explain? Mainly because there is “suppressed savings”, as spending opportunities are significantly reduced by the blockade caused by the crisis. On the other hand, there is a precautionary saving factor: in general, in challenging circumstances such as the current one, households save more by facing uncertainty about what the future holds in terms of employment and finances, or to prepare for possible contingencies. But looking ahead in the next few months, the effect of “accumulated savings” is very likely to be revealed as the economy reactivates to the new normal. Conversely, preventive savings will continue to weigh on spending, as uncertainty about the economic outlook and potential of new viral epidemics will remain high.

The end of austerity: The middle and lower class have been destroying their reserves for four decades

Various economies. Excessive savings are greatest in developed economies, especially in North America and Europe, where locks are widely used and public spending is high. In the U.S. alone, households have accumulated more than 1.7 billion in additional savings. The United States is followed by the United Kingdom, Canada, Spain, Australia and Portugal. The quarterly savings rate in Spain rose to 27.4% in the second quarter of 2020, before the crisis it was 7.7%, while in the euro area the rate rose to 24.6% from 12.4%, and in Japan to 21.8% % s 4.4%.

Meanwhile, in Asia, the accumulated surplus of savings was lower than in other regions because the pandemic was suppressed and the impact on household behavior was less pronounced. In South America and Eastern Europe, savings were also lower as a result of the strong impact of the pandemic and less government aid aid.

The piggy bank of the rich, the misery of the poor. However, the impact of a pandemic varies among households. The wealthier make up most of the extra savings, while the poorest households have declined as theirs declines. That is one of the paradoxes of the pandemic. A 23.9% drop in spending in the second quarter of 2020 punished insecure workers, the self-employed and entrepreneurs, but inflated the current accounts of those employees, civil servants and retirees who did not see their incomes declining. In other words, those who have lost purchasing power due to the crisis do not spend further than their vital needs because they cannot, and those who have not even earned them because they save because of the uncertainty of appearance or the inconvenience of restrictions.

At home. The pandemic made us Spaniards wary: 3 out of 10 households saved more. That is, nearly 40% admit to reducing their costs during a pandemic. They saved a little more than Europeans, along with other countries like Luxembourg (41%), Turkey (35%), the United Kingdom (33%). According to an international ING survey, Generation Z saved the most during months of captivity in Europe. Although 38% recognize that they will have to take advantage of this when they return to normal. In addition, Spaniards ’perceptions of austerity changed, slightly reducing the percentage of those who did not feel comfortable with what they had. Before the pandemic, 72% said they needed to save more to feel comfortable, while now that percentage has dropped to 67%.

Spain, financial fever. In our country, there has never been so much money in bank deposits, but at the same time, the Spaniards were the Europeans who invested the most in the stock market in the midst of this pandemic. A study published by the Bank of Spain analyzing the development of eurozone citizens’ savings found that Spaniards allocated 5.7% of their gross disposable income during the first six months of 2020.

Ultimately, precautionary savings must remain, at least until the uncertainties surrounding the coronavirus dissipate. At the moment, these uncertainties are still unusually high, which means we will probably have to wait a while before European households will be as wasteful as they were more than a year ago.

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