Most Portuguese households will be able to weather the severe inflation and energy crisis on their own and have money to make purchases, most of them for essential goods, as they will resort to savings like never before, the Bank of Portugal says in the new economic bulletin.
Having hit an all-time high of more than 19% of disposable income at the start of the pandemic, families are already draining their savings in these times of greater lockdown.
And they will continue to scrape the bottom of the vault. In 2023, this private savings rate will collapse to just 3.9%, says the central bank led by Mário Centeno.
The National Institute of Statistics (INE) defines the household saving rate as “the portion of disposable income not used for final consumption, calculated using the ratio of gross savings to disposable income (including an adjustment for change in net participation of households in pension funds).
Lockdowns helped to save
During the pandemic, families, especially those who managed to keep their jobs and salaries, managed to significantly increase their savings levels in a context of confinement and strong consumption restrictions (travel, tourism, visiting restaurants, cultural events, etc.). which of course made it possible to thoroughly reduce consumer spending.
As mentioned, it was at that time, in the middle of the pandemic, that the Portuguese savings rate in the second quarter of 2020 reached its highest value in recent history, at 19.3% of real disposable income (the effect of inflation already beyond taken into account). it corresponds to 6.6 billion euros in the nest egg of national households.
The calculated value only concerns the part of the financial savings, such as deposits and savings certificates, registered in that quarter, says the BdP. Other forms of booking, such as investments in real estate, are not considered.
Quarantined in early 2021, the second most austere period of the pandemic, the country faced a massive wave of covid hospitalizations and deaths, the savings rate would reach the second highest value in the official series going back until 1999, when Portugal joined the Eurozone.
In the first quarter of last year, the weight of savings in real disposable income was no less than 14%, almost five billion euros in those three months.
After these totally atypical times, the quarantine ended and people resumed many of their consumption and mobility habits, contributing to the normalization of the ratio.
Problem: At the end of 2021, a new, serious crisis loomed on the horizon. It was the return of inflation that a few months later, with the outbreak of Russia’s war against Ukraine, turned into a violent inflationary energy crisis, which seriously affected vital sectors of the economy, such as food, the cost of which skyrocketed, causing many families, especially the poorest, on the cutting edge (as Dinheiro Vivo wrote last Saturday).
Official figures from INE say that the weight of household savings is already at 3.9% (Q2 2023) and should fall even further in the third and final quarter of this year, according to Banco de Portugal accounts. In 2023, the annual average savings rate should remain close to that minimum of 3.9%.
Do not forget that, in addition to inflation, the Portuguese are already facing the violent impact of rising interest rates, especially the most debt.
In the new study, the BdP explains that household consumption is already eroding savings and that this effect will take effect sometime in 2023, when many households will be faced with an almost empty piggy bank. This will push the Portuguese economy, which is highly dependent on domestic consumption, back towards fragile growth.
He says that “in 2023, the very small increase in private consumption will be accompanied by a lower financial cushion for households, an increase in debt service [juros] and low consumer confidence”.
Still, Centeno hopes that the Portuguese can still resort to what remains at the bottom of the treasury: “the further reduction in the savings rate will help contain the slowdown in private consumption” next year.
The BdP states that “nominal disposable income slows down in 2023 – due to the stabilization of employment and the disappearance of temporary support measures, along with the increase in debt service – and its purchasing power stagnates again given still high inflation “.
And that “the impact of rising interest rates and inflation on household financials should be greater for indebted and lower-income households,” he adds.
Regarding interest, Mário Centeno said at the press conference for the presentation of the economic bulletin that the Portuguese will have to pay the banks well for the very sharp increase in lending rates, which could increase many monthly bank repayments by hundreds of euros in the coming months.
The interest receivable on deposits will remain low and will rise slowly, the governor warned.
“In 2023, the effects of rising interest rates on debt service are greater, reflecting the increases observed in 2022 and expected in 2023, but the rise in deposit rates is much lower than that on loans, so the Its impact on interest received is modest and on average lower than that of debt service for all quintiles of household income,” he found.
Source: DN
