A World Hoarding Money... US and Europe Struggle to Boost Spending as Savings Rise

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Amid ongoing concerns about an economic recession due to the novel coronavirus infection (COVID-19), a phenomenon of rising savings rates is emerging in the United States and Europe. Consumption sharply declined due to lockdown measures to prevent the spread of COVID-19, and as signs of a prolonged crisis appeared, people seem to be accumulating funds as a precaution. As countries begin to reopen their economies, attention is focused on whether the saved funds will be released into the market amid signs of a resurgence of COVID-19.

According to Bloomberg News on the 12th (local time), household deposits in four European countries?France, Italy, Spain, and Germany?increased by more than 100 billion euros during March and April. This is more than three times the average household deposit amount over two months in the past decade. Consumption sharply decreased as outings were restricted and employment became unstable during the COVID-19 crisis.

Among them, France saw the most significant increase in deposits. Household deposits in France during March and April were recorded at 35.8 billion euros (approximately 48.7 trillion won). Considering that the average household deposit amount over two months in the past decade was 9.2 billion euros, this was more than three times higher. Italy’s household deposits increased by 20.7 billion euros during March and April, and Spain’s rose by 17.4 billion euros. The average deposits over two months in the past decade were 5.5 billion euros and 2.9 billion euros for the two countries, respectively.

In Germany, which is considered to have relatively quickly contained the spread of COVID-19 within Europe, household deposits increased by 3.2 billion euros during March and April, but this was less than the two-month average of 13.5 billion euros over the past decade.

Jill Moek, AXA’s chief economist, mentioned that restaurant reservations are increasing in European countries like Germany, indicating signs of economic recovery, and said, "There are signs that recent savings are being spent." However, she added, "If you ask whether the savings rate can return to pre-COVID-19 levels, I don’t think so," calling this a rather concerning aspect.

Besides these four countries, Bloomberg reported that savings in the UK also increased to an all-time high during March and April. Dan Hanson of Bloomberg Economics forecasted that UK household savings would sharply increase in the second quarter as well. He said, "The key to the recovery phase will be how much future savings decline," and added, "Households’ concerns about future jobs and income may keep savings at a high level thereafter."

This phenomenon is not limited to Europe. In the United States, the personal savings rate in April was recorded at 33%, marking a historic high. The savings rate in March was 13.1%, the highest since November 1981, but the record was broken again within a month as COVID-19 rapidly spread. Gregory Daco, an economist at Oxford Economics, analyzed, "Uncertainty and fear of the virus still remain, suppressing people’s desire to go out and spend as usual."

This phenomenon is also occurring in South Korea. According to the Bank of Korea, the total savings rate (provisional) for the first quarter of this year was 36%, up 1.6 percentage points from the previous quarter. This is the highest quarterly figure since the third quarter of 2018 (36.3%).

A higher savings rate means that consumption has decreased accordingly. In Europe, consumption accounts for more than half of economic growth. In the first quarter of this year, it decreased to about two-thirds compared to the same period last year. The U.S. economy is also driven about two-thirds by consumption. Ultimately, for the effects of economic recovery such as lifting lockdowns to appear, consumption must revive. Bloomberg reported, "Unemployment will be an important factor in determining future spending," and said that governments are trying to stimulate consumption through economic stimulus measures such as subsidies.

This content was produced with the assistance of AI translation services.