Euro Zone Savings Rate Dips but Remains Exceptionally High

The euro zone savings rate dipped slightly in the third quarter of 2022 but remains exceptionally high, Reuters reports, citing Eurostat data. This development indicates a key hurdle to economic growth.

The savings rate fell to 15.3% in Q3, down from 15.6% in the previous quarter. While this marks the first decline since early 2022, the rate remains significantly above the pre-pandemic range of 12-13%.

Eurozone households have been accumulating savings at an unusually high rate over the past few years in an attempt to recoup wealth lost to inflation. This has dampened consumption and contributed to sluggish overall economic growth, despite hopes that household spending would drive the recovery.

This contrasts sharply with the United States, where the personal savings rate stood at 4.4% in November, below the historical average and trending downwards as families remain confident in their employment prospects.

While the European Central Bank (ECB) continues to anticipate a consumption-led recovery, it acknowledged last week that household savings could remain elevated in the near term due to ongoing political and economic uncertainty.

The slight dip in the savings rate in Q3 was primarily used for personal consumption rather than investment, as evidenced by modest increases in retail sales during the summer quarter. Consumption expenditure rose by 1.1% on the quarter. However, investments in fixed capital, primarily home purchases and renovations, slipped to 9.1% of disposable income, well below historical trends.

Eurostat also reported that corporate profitability increased in the third quarter after a steady decline since the beginning of 2023.