Global Daily – The eurozone’s fearful consumers

by: Aline Schuiling

Euro Macro: Precautionary household savings could rise further –The second wave of Covid-19 cases in the eurozone has clearly materialized and, as we mentioned in our Global Daily Insights of 13 October, a number of governments have announced new measures to try and control the spreading of the virus. During the first wave of the virus in March-April, private consumption growth in the eurozone plummeted and the saving rate (household savings as a percentage of disposable income) shot higher (to 24.5% in 2020Q4, up from 12.4% in 2019Q4). Part of this jump in the saving rate was due to lockdowns, as consumers were just not able to go out and spend, but part of the rise also reflected that consumers cut back spending as a share of disposable income voluntarily.

In its Economic Bulletin of 24 September (see here), the ECB published an article assessing how much of the jump in savings in the first half of this year, was forced (due to lockdowns) and how much was driven by the desire to save some extra money for a rainy day (i.e. precautionary savings). The ECB’s study finds that precautionary savings are closely linked to consumers’ worries about future income, as is being reflected in the component of consumer confidence that measures the consumers’ expectations for the unemployment rate in 12months time. The ECB estimates that about 1.5 percentage points of the jump in the saving rate in 2020H1 was due to precautionary motives. It mentions that although precautionary savings seems small compared to the total jump in the saving rate, the contribution of precautionary saving is large in historical perspective.

Consumers’ propensity to buy big-ticket items still subdued

Source: Thomsen Reuters Datastream, ABN AMRO Group Economics

Another indication that part of the extra savings that were accumulated during the first half of the year were voluntary and driven by worries about future income, is the consumers’ propensity to buy big-ticket items. This component of consumer confidence has dropped during the lockdown period in March-April and has remained significantly below the pre-pandemic level and also lower than its historical average since then. This suggest that consumers do not plan to spend their extra accumulated savings anytime soon. The recent flaring up of the number of Covid-19 infections probably will induce consumers to increase precautionary savings further.  (Aline Schuiling)