The savings accumulated during the pandemic have barely been allocated to consumption, and the trend will continue in the immediate future, so that it cannot be taken into account to boost growth for the rest of the year. This is the conclusion reached by an article from the Bank of Spain, which concludes that “there is no need to expect the extraordinary purse to provide a very significant boost to aggregate household consumption in the coming quarters”. Where will this savings go? Basically, to repay loans, an inclination already underway and which will be accentuated by the incentive provided by the increase in variable mortgage rates.
In fact, it is the line that has been followed since the outbreak of the pandemic, in 2020. The savings accumulated during the pandemic have been allocated a minimal part to consumption and have been directed mainly to investment in deposits and mutual funds. investment 80% of the savings accumulated between the beginning of 2020 and the end of 2022 went to financial investment, and another, smaller part, to investment and repayment of loans.
Savings had been forced into storage when drastic restrictions on mobility and activity meant a drop in consumption, to which an additional part was also added incentivized for precautionary reasons due to the great uncertainty that reigned those moments.
In 2020, the savings rate of Spanish households reached almost 18% of gross disposable income, more than double from a year earlier, and decreased to 14% at the end of 2022, which means around 100,000 million euros. The article “La evolucion y el destino del ahorro extraordinario acumulado por los hogares españoles desde el inicione de pandemia”, by Pana Alves and Carmen Martínez-Carrascal, shows that, with the savings mattress, the extraordinary financial investment went concentrate in 2020, moderated significantly in 2021 and fell last year. On the other hand, gross capital formation and loan amortization carried out the reverse process, i.e. it increased in 2021 and 2022 in relation to the reference year, 2019.
Currently, households retain the bulk of the extraordinary savings accumulated during the pandemic in financial assets and, more particularly, in liquid assets. Specifically, they hold close to 50,000 million euros in cash and deposits. It is a mattress that will not be used to stimulate consumption, but will be used in large part to repay loans.
The Bank of Spain article also underlines the very unequal distribution of accumulated savings according to income. Households with higher incomes concentrate a very high proportion, while, at the other extreme, 20% of households with lower incomes barely increased their savings during the pandemic. The reason is that workers with higher incomes were less affected by the pandemic because they are underrepresented in the sectors that suffered the most; and, in addition, the expenditure that could not be carried out (goods and services that require more mobility and social interaction to be consumed) weighs more heavily on the consumption of higher incomes.
