Families in Europe have an ever-increasing amount of savings, which raises doubts about whether consumer spending will help the region’s economy, which is already lagging behind that of the US.
This increase in savings at a time when consumers’ incomes are growing at the fastest rate in years defies conventional thinking about consumer behaviour and has led some to wonder if a paradigm change has occurred that could be detrimental to Europe’s future prosperity. While some economists believe that things will soon return to normal, others predict a more permanent change. A lot hinges on how this puzzle is solved.
Growth might take off if savings, which are at their highest level since the pandemic’s deadliest days, are unwound.
However, if the reversal doesn’t happen, companies that have been stockpiling manpower for years may decide to cut staff, which would further limit spending and possibly set off an economic downward spiral, according to Reuters.
In the second quarter, households in the Euro zone saved 15.7% of their disposable income, which is significantly more than the 12% they were saving prior to the epidemic. Over the previous two years, this percentage has been rising.
The “savings rate” in Britain was 10.0% and has been rising for years to levels not seen since the epidemic, when people had less possibilities to spend their money.
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