The household savings rate in Spain increased in the first half of this year to almost 14% of their gross disposable income – in less technical terms: on average we have saved 1.4 euros of every 10 euros we have had to spend after paying taxes, including deposits or financial products considered demand. This level is a maximum not seen since the record of the first part of 2021 (18.9%), during the pandemic, when consumption options were very limited. Forecasts indicate that this savings rate will end the year at 13.3%, just over one point above the 2023 level (12%) and almost five points higher than the average between 1999 and 2019 (8. 7%).
This “conservative” or “cautious” behavior of families is surprising all experts. Savings are slowing consumption growth despite the moderation of inflation — which, together with wage increases, leads to the recovery of purchasing power after the damage suffered between 2021 and 2023 — and the historic creation of jobs — in the third Quarter, a new record was reached with 21.8 million workers, which also increases the disposable income of families because more people work in each of them on average.
“It is of considerable interest,” admits the group of experts who signed the latest “Observatory on the economic cycle in Spain” from the Fedea analysis center. “No one had foreseen it,” acknowledged, for his part, Raymond Torres, the economic situation director, in the presentation of the update of Funcas’ forecasts for this last week.
The explanations for this propensity for families to save more than before the pandemic are forced to break with historical trends. “Current savings levels have only been observed in contexts of high uncertainty. “It is the first time that these levels have been seen in an environment of constant job creation,” says the BBVA Research economic projections report.
The International Monetary Fund (IMF) has also addressed this issue in its regional report on Europe, published this week: “Low consumer confidence and uncertainty about future shocks to their income have increased precautionary savings and, in Consequently, savings rates have remained above pre-pandemic levels. This has been added to the effects of high interest rates due to the monetary austerity of the European Central Bank (ECB).
Raymond Torres shares this reflection and gives another name to the IMF’s “precautionary savings”: “It is the trauma of the financial crisis, which we know in other countries like Japan left its mark on an entire generation.” According to this expert, “it is true that with high interest rates it is more interesting to save than in previous times, where saving was practically penalized. But the current behavior of savings goes beyond the traditional relationship with interest rates, because we are also seeing additional deleveraging [en el segundo gráfico de esta información]. “Following the financial crisis, both households and businesses are tending to behave particularly cautiously in an uncertain environment.”
Those families that carry the “trauma” of the bursting of the real estate bubble, the euro crisis, the shock of the pandemic and, finally, the peak of inflation have among their worst nightmares the unbearable unemployment rates of just a decade ago or the drama of evictions due to non-payment of mortgages. A “trauma” that coincides with increasingly complicated access to housing.
As summarized by the Bank of Spain in a recent report, the tightening in the granting of mortgages has “contributed to the shift in housing demand from the purchase to the rental segment in groups with lower incomes and accumulated savings. This shift to the rental market would have been particularly intense among young people and in those geographical areas in which the increase in housing prices has been greater than that of the average income of new resident households. These households are pushed as little as they can.
“Increased uncertainty is expected to keep precautionary savings rates elevated, while memories of major shocks gradually fade.” […]. Furthermore, the slow decline in interest rates will keep investment in low-risk savings products attractive. [depósitos o letras del Tesoro]while discouraging debt-financed consumption [créditos y también hipotecas]”adds the IMF.
Furthermore, in Spain, “although the reduction in interest rates will allow greater growth in consumption, there is evidence that the benefits of the recovery are being concentrated in groups with a lower marginal propensity to consume.” [las familias más ricas y los pensiones]. Furthermore, the increase in employment is disproportionately concentrated in immigrants,” continue the experts from the BBVA analysis firm.
In September, with data up to the first quarter, Javier García, an economist at Caixabank Research, stressed that precisely the richest have benefited in recent years from the increase in “property income, thanks to the increase in mortgage payments.” dividends, and other investment income”, and we must also take into account rental income, which captures up to three million families in Spain. Meanwhile, the Government has protected the income of pensioners, revaluing them based on the CPI (Consumer Price Index).
At Fedea they extend the analysis of the impact of this trend in our country: “At the end of the second quarter of 2024, consumption per person of working age was 4% below 2019 levels and 6.2% below below its peak in 2007. This poor consumption performance, in contrast to GDP growth, has occurred at the same time as the increase in the household savings rate, reaching 14.2% in the first quarter of 2024 “Factors such as the increase in housing prices and expectations about the economic situation have influenced this trend.”
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