In the four main Eurozone economies, the savings ratio at the beginning of 2024 was higher than before the health crisis. In France, Germany and Spain, this drop in the proportion of income consumed is not explained by the more traditional determinants (mainly purchasing power and unemployment rate). In addition, apart from Italy and, to a lesser extent Spain, it is not accompanied by increased investment in housing: these excess savings are therefore of a financial nature. There are several factors that can account for this.

One series of possible explanations arises from the episode of high inflation that occurred in Europe in 2022 and 2023 and the resulting behaviour shown by households. This has certainly left its mark. On the one hand, household perceptions take some time to adjust to actual price changes, which is likely to increase their savings ratio temporarily in a period of disinflation. On the other hand, high inflation may have pushed households to save more in order to maintain their “real cash holdings”, i.e. the real value of their financial assets, which had been undermined by the sharp rise in prices over the previous two years. Additionally, the rise in interest rates limited households’ access to consumer credit. Finally, the link between excess household savings and the financial situation of the Eurozone Member States and the existence of “Ricardian” effects is not easy to establish on the basis of past behaviours. However, in Germany and France, the political uncertainty of 2024 could be such as to give rise to a certain wait-and-see attitude among households, thus encouraging savings behaviour.

A second type of possible explanation can be put forward, concerning changes in the demographic structure in Europe and fluctuations in the composition of income since the health crisis. The aging population seen in the Old Continent results in a decrease in the youngest age groups, who have a low propensity to save. This is an underlying trend, however, unlikely to account for a fairly sudden shock to the savings ratio occurring over just a few quarters. There are other factors that have changed more rapidly. Thus the change in the composition and distribution of income since the inflationary shock has favoured saving behaviour: gains in purchasing power have been driven notably by wealth income, which is more likely to be put into savings and is concentrated in the wealthiest households, who save more. Finally, the increase in the savings ratio can be explained temporarily when households no longer favour certain products: energy expenditure in particular has been falling since 2019, as a result of households’ energy-saving behaviour, while the sluggishness of the European automobile market against a backdrop of technology transition is fuelling a certain wait- and-see attitude and affecting the consumption of durable goods.

Some of these phenomena seem to be temporary by nature: inflation is returning to normal, household perceptions are adjusting, and consumer credit rates are falling. In addition, income is now driven more by wage income, which is more likely to be consumed than income from assets. On the other hand, some factors persist: the wait-and-see attitude does not seem to have been lifted in the automobile market and the real value of households’ financial assets remains below its earlier trend, even though it is picking up a little. These factors suggest a forecast of a moderate decline in the savings ratio, but it is nevertheless likely to remain higher in the medium term than its level before the health crisis...