Why there is no fear of saving despite many crises

Global trends

Handelsblatt author Thomas Hanke analyzes interesting data and trends from all over the world in the column.

(Photo: Klawe Rzeczy)

Germany is stuck in an economic crisis: “The national economy as a whole is facing a massive loss of prosperity,” said Michael Grömling, an economics expert at the German Economic Institute, on Wednesday when the IW forecast was presented. It predicts a slump in economic output of almost one percent for the coming year.

In economically uncertain times, especially in a recession, the textbook wisdom applies that people save more. This is exactly what happened at the beginning of the Covid crisis in 2020: the savings rate, i.e. the part of the disposable income that private households put aside, rose sharply.

One would expect a similar reaction now: the uncertainty about the Russian invasion of Ukraine, the extremely high energy prices, and the fear that some fossil fuels such as gas might no longer be available in sufficient quantities are making life difficult for large-scale industry and many small businesses . Given these depressing prospects, precautionary saving by private households makes sense.

But the opposite happens. In the second quarter of this year, citizens in the economies that are particularly threatened by the crisis reduced their savings at a rapid pace.

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The USA is at the top with minus 70 percent, followed by the Spaniards with a reduction of one third. It seems as if a great relief is spreading instead of depression. Do the citizens make their own sense of the events, do they distrust the prophets of the crisis?

Goods are getting more and more expensive

Opinions differ on the interpretation of the data. Alexander Kriwoluzky from the German Institute for Economic Research thinks that many households have no choice but to save less: “The savings rate is falling because goods are becoming more expensive, but incomes are only adjusting slowly.”

Of course, one would expect saving rates to rise in times of great uncertainty. “However, it will simply not be possible right now, many households will probably even have to save.” In addition, politicians are signaling to households that there are relief packages that will also reduce the pressure to save.

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Stefan Kooths, Vice President and Head of Economic Affairs at the Kiel Institute for the World Economy (IfW Kiel), sees other reasons: “The falling savings rates are likely to be an aftermath of the corona crisis.” During this time, many households increased their savings rates. “These pent-up excess savings are now being reversed because they have accumulated mostly among those with higher incomes and for whom saving as a saving motive is less important,” argues Kooths.

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Forced savings or relief after Corona? The index of consumer confidence in the European Union gives some clues. In November 2022, it was in the red at 25.8 points, a slight rebound from September’s record loss. In the euro zone, the value was even better.

In Germany, the GfK Consumer Climate Index plays a major role in researching consumer sentiment. In November 2022 it was minus 41.9 points, a slight increase. For the current month, GfK is forecasting a further slight improvement. According to the retail trade, the Christmas business is going quite well, which also points in this direction.

People’s worries aren’t that great

This suggests that people “on average” probably have the expectation that things will not turn out quite as badly for them as they feared immediately after the Russian invasion of Ukraine.

The state relief should have brightened the view into the future somewhat. Even if it is clear that very different living situations are hidden behind the average: It would be a good sign for the German economy as a whole if private households became a little more confident. And US President Joe Biden is happy about the consumption boom that his popularity could increase in the run-up to the 2024 election.

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