With global consumer savings up $5.4 trillion since the coronavirus hit the world, a spending boom could well boost economic growth this year, CNN reported.
Consumer Savings In The Pandemic Seen To Power Strong Economic Growth
According to Moody’s Analytics, households had amassed excess savings, amounting to 6% of global GDP, by the end of March. In a research note Chief economist Mark Zandi, wrote Monday that the savings were on top of what they would have been able to save with saving behavior remaining the same as in 2019, had the pandemic not occurred.
The United States topped with the largest excess saving, totaling $2.6 trillion, which amounted to 12% of US GDP. The United Kingdom followed the United States with savings amounting to 10% of GDP.
According to Zandi, excess saving generally was at its highest in Europe and North America where lockdowns and government support had been most significant.
Furthermore, many affluent households whose incomes had not taken a hit in the pandemic had built up savings, that in normal circumstances, they would have spent on entertainment, travel, and eating out.
Another factor contributing to accumulation of savings was the support extended on an unprecedented scale to companies and workers by governments and central banks. According to the International Monetary Fund’s statement in November, central banks and governments around the world had cushioned their economies to the tune of $19.5 trillion in their bid to avert the worst economic crisis since the Great Depression.
That stimulus had supported businesses that were struggling had paid wages, that allowed some people to save even in the economic slump.
With the easing of lockdowns, consumers were expected to spend around $2 trillion of this surplus cash, setting the stage for the global economy racking up considerable gains.
According to Zandi, the combination of overflowing excess spending and unleashing of considerable pent-up demand would see massive consumer spending globally as countries opened up with approaching herd immunity.
He added that it was expected that approximately one-third of the saving would be spent this year, adding marginally in excess of 2 percentage points to GDP growth globally.
The extra spending could also stoke inflation, which was a growing area of concern for economists and investors as it could force central banks to hike interest rates and cut back asset purchases sooner than expected.
The US Producer Price Index, measuring sale prices of services and goods, rose 1% in March on a seasonally adjusted basis. It was a steeper rise than the month earlier and exceeded the expectations of economists.
According to Zandi, consumer spending could exceed or come in lower than anticipated, depending on how fast the pandemic subsided. According to the findings of a survey conducted earlier this month by the New York Federal Reserve, households were utilizing the larger portion of their government stimulus checks towards paying down debt or saving, rather than spending.
Strong consumer confidence, also augured well for spending. The first three months of the year marked the highest level of the global consumer confidence since records started in 2005 as per The Conference Board.
According to Zandi, one factor crimping an even stronger spending boom was that a large excess saving share had been accumulated by households with high-income especially in the United States. He added it would largely be treated as wealth rather than income by the families. They would, therefore, spend rather less of it, at least over the short term.
People 55 and older, in the United States, had over 60% of the excess saving. Homeowners held 90% while three quarters was concentrated in households having at least a college degree.
According to Zandi, none of it was too surprising but it served as a reminder of how hard the pandemic had hit the finances of low-income renters with less education and the young.