Families living in Portugal had to make significant use of the savings they managed to acquire during the pandemic and the era of low interest rates and, according to a new study by the Organization for Economic Co-operation and Development (OECD), in comparative terms (in a group of 18 developed countries) are those that are consuming the most savings to cope with the inflation crisis that started in 2022.
The new economic perspectives (outlook) calculate an indicator called ‘excess savings’ (the Bank of Portugal calls this ‘accumulated savings’), which basically measures the savings that households have managed to accumulate or exceed the so-called levels to accumulate. normal pre-pandemic levels (2015 to 2019).
This surplus, largely explained by the relatively generous support from governments during the pandemic lockdowns, the time of near-zero interest rates, is now being rapidly eroded by the rise in interest rates and the deterioration of purchasing power, with many households using these funds (it could be classic savings, such as term deposits) to pay off loans to buy a house, for example.
In this way they try to be a little less vulnerable to the sudden and aggressive increase in interest rates by the European Central Bank (ECB) and commercial banks, in the case of Portugal.
According to the OECD, this buffer or reserve in terms of savings, measured as a percentage of disposable household income, is being consumed much faster than in most of the rich countries analyzed.
In mid-2022 (second quarter), the accumulated savings surplus of Portuguese families amounted to 8% of their gross income. The average in the eurozone was 12.4%.
The crisis kicked in and the brutal rise in interest rates, and families who had savings to draw on, took advantage of it.
As it happens, in just one year, until mid-2023, Portugal’s savings surplus fell to 6.7% of disposable income, almost half the value recorded at the eurozone level.
Families living in Portugal therefore used 1.3 percentage points of their savings margin to cope with the crisis. This ranking of those who have spent the most on savings is led by the Italians (-2.7 percentage points in the year under review) and the North Americans (-1.9 percentage points).
In fact, the Eurozone average was in the opposite direction. There was an increase in excess cumulative savings of around 0.3 percentage points, mainly driven by the cases of France, Austria, Germany and Spain.
In Portugal, except during the years of the pandemic, the savings rate has always been very low “in historical and international terms”, as noted by the Bank of Portugal, making this reality identified by the OECD even more worrying.
If these excess savings disappear, it means that many Portuguese families could face serious problems in the event of another serious crisis.
According to the OECD, the classic indicator of gross savings of individuals (households) in the pre-pandemic period (2015 to 2019) was about 6.9%, a value about half of the Eurozone average, which on 13 lag.7%.
In the coming years, the OECD expects a recovery of Portuguese savings to 9% of disposable income in the period 2024 and 2025, but this will remain well below European standards (16% on average in the eurozone).
As mentioned, there was a rush to save in Portugal due to rising interest rates. A lot of money was raised from the bank to reduce the bank’s loan (capital and interest).
Cheap deposits, expensive loans, sinking savings
Banco de Portugal confirms this. “Given the rise in debt burdens and the significant difference in interest rates on deposits, many families with accumulated savings have partially or fully reduced their mortgage loans,” the central bank said in the Financial Stability Report, published a week ago.
“The savings rate remains historically and internationally low. The household ratio fell to 5.7% of disposable income in the year ending June 2023, a value lower than in 2019 (7.2%) and 2022 (6.5%), following the strong increase observed during the pandemic ( 11.9% in 2020 and 10.6% in 2021),” he adds.
“The acquisition of financial assets was reduced to 0.1% of disposable income (5% in the first half of 2022), with a reallocation of investments in deposits, which was reduced by 8.7% of disposable income, to subscriptions to savings certificates”.
But during the first half of 2023 there was also “divestments in shares and other participations with the exception of participations in investment funds (-2.8% of disposable income) and in insurance and pension funds (-4.4% of the disposable income)”, lists the BdP.
The OECD recalls that the reduction in excess savings built up since the start of the pandemic is an “important area of uncertainty” as it could even “leave room for positive surprises in growth”.
“The phenomenon of excessive savings mainly applies to advanced economies, where government measures to support household incomes in the first phase of the pandemic were substantial and where consumption opportunities were limited by mobility restrictions and the closure of parts of the economy, especially in the service sector. sectors,” describes the organization of the richest and largest countries in the world.
This caused savings overall to skyrocket, as we know. It will be two years since that time is over and people’s savings are gradually returning to the banks, but in the form of income, payment for credit granted, as is clearly the case in Portugal.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
