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Piggy bank: Fearful saving must not become permanent
Photo: Guido Mieth / Getty Images
Economic crises cast long shadows.
Catastrophic experiences are remembered and change human behavior.
We are becoming more cautious, also when dealing with money.
How long will the shadows of the corona crisis be?
Something happened this year that has probably never happened in this form before: citizens have changed their savings behavior by leaps and bounds - almost everywhere in wealthy countries.
To the author
Photo:
Institute for Journalism, TU Dortmund
Henrik Müller
is professor for economic journalism at the Technical University of Dortmund.
Before that, the graduate economist worked as deputy editor-in-chief of manager magazin.
In addition, Müller is the author of numerous books on economic and monetary issues.
Every week he gives a pointed outlook on the most important economic events of the week for SPIEGEL.
In 2020, savings rates more than doubled in the euro zone and the USA, tripled in the UK, and even quintupled in Canada, predicts the OECD.
The increase is less pronounced in Germany, but here too, private individuals are now saving an average of 16.6 percent of their disposable income, five percentage points more than in the previous year.
The big question is how sustainable these behavioral changes are.
Much depends on this for further economic development.
If the citizens remain cautious, this could prolong the economic weak phase by years.
If you give up your restraint after the end of the pandemic and possibly allow yourself additional pent-up consumption requests, economic overheating is even possible.
We do not know it.
This is an exceptional historical situation for which there are no models.
But there is some evidence.
Contact-intensive consumption
Usually, savings rates follow long-term trends.
Saving behavior rarely changes abruptly.
In some countries, a gradual increase in values has already been observed in recent years: in aging societies, citizens put a larger proportion of their income aside with a view to retirement.
Income distribution also plays a role: the wealthy have significantly higher savings rates than poorer population groups.
The sudden increase this year is a special case.
It is possible that the Corona crisis is a slip and that the values will quickly normalize again afterwards.
This is currently the core scenario of the economic researchers.
The Advisory Council on the Assessment of Macroeconomic Development (“Five Wise Men”) predicts that the German savings rate will fall back to roughly its pre-crisis level in the second half of 2021.
more on the subject
Young Money Blog: Corona check for the budget bookBy Henning Jauernig
The economists are based on a survey from September this year, in which 82 percent of respondents said they had cut their consumption because they had "done less and therefore spent less money due to the corona-related restrictions."
Logically, during shutdowns and lockdowns you can neither go out to eat nor go on weekend trips.
Since a large part of consumer spending goes into such contact-intensive services, the surge in savings rates is an almost inevitable consequence.
Because the pandemic wasn't over yet, many people remained cautious even after the summer easing.
In France, for example, spending on hotel stays, visits to restaurants and other leisure services was still well below the pre-crisis level in August.
The renewed shutdown of public life in autumn and winter will once again lead to an increase in savings.
Conversely, this could mean: As soon as significant parts of the population are vaccinated and the warm season begins, the old normal could return.
The pandemic would remain a considerable spike in the statistics - but without any lasting effect on consumption and savings behavior.
Might be.
It would be nice.
The legendary thrift of the war generation
The psychological factor is more difficult to assess.
The enormous uncertainty caused by Covid brings with it uncertainty.
People worry and take more precautionary measures - possibly permanently.
The thrift of the war generation is legendary.
This effect can be demonstrated for many countries, as the economists Joshua Aizenman and Ilan Noy showed in a study a few years ago.
There is a "history-dependent dynamic": In societies that have suffered crises in the past, private citizens tend to save more.
The decisive factor is the experience of rapid declines in income, especially as a result of mass unemployment.
more on the subject
Wealth barometer: citizens want to save more because of CoronaBy Henning Jauernig
After all, 43 percent of those questioned stated in the survey for the Expert Council that they would save more because of the uncertain economic prospects.
Fear of losing one's job, but also concern about general economic and political stability, trigger changes in behavior.
So far, the corona-related drop in income in Europe has been limited.
Short-time working programs, massive government aid for companies, suspended bankruptcy rules - all of these have contained the immediate economic effects of the pandemic.
It is therefore crucial what happens in the coming year.
Should summer, sun and vaccines ensure that the frozen economy thaws again relatively unscathed, the corona shock could be forgotten relatively soon - and the desire to buy could return.
Citizens' consumer demand could then become an important driver of economic recovery.
If this operation fails, we find ourselves in a different scenario.
The human factor
As good as the prospect of vaccinations starting soon, there are still a lot of uncertainty factors.
This also includes the vaccines themselves. If side effects arise from massive use that have not yet been identified, this could delay the vaccination campaign - and make it necessary to continue the shutdowns.
Political risks also hang over the economy:
What distortions will the UK's exit from the EU internal market bring to the European economy?
Is the EU's 750 billion euro corona package being delayed because Poland and Hungary insist on their veto due to the new rule of law mechanism?
Will the new US President Joe Biden continue the protectionist course of his predecessor - nicer in tone, but just as unyielding on the matter?
After the federal elections next autumn, will Germany possibly be left without a stable government coalition and competent government team for a long time?
The list could go on and on.
Many disappointments are conceivable.
They all have what it takes to shake an already fragile economy.
Mass bankruptcies and the loss of millions of jobs would become more likely.
If the insecure citizens hold back when it comes to consumption, that would act like a crisis intensifier.
The human factor remains a major unknown in the business cycle equation.
The euphoria afterwards
The situation is delicate for politicians.
Governments and central banks must - on the one hand - stabilize the situation as long as necessary to prevent the crisis from solidifying.
Fear saving must not become a permanent condition.
On the other hand, they have to react quickly should the economy overheat become apparent.
Commerzbank economists have already speculated about a coming inflation last week.
Post-pandemic euphoria could help.
Icon: The mirror
The main economic events of the week ahead
Monday Up Arrow Down Arrow
Beijing -
Globalization Indicator
- China's Customs Announces November Foreign Trade Figures.
Tuesday Up Arrow Down Arrow
Luxembourg -
European welfare state
- The European Court of Justice ruled on the Posting of Workers Directive.
Hungary and Poland had sued the new version of the 2018 law.
Wednesday Up Arrow Down Arrow
Beijing -
Inflation in China
- The Statistics Office of the People's Republic presents figures on the development of consumer prices in November.
Thursday Up Arrow Down Arrow
Frankfurt -
Fully in crisis mode
- Council meeting of the ECB.
Then President Lagarde explains the monetary policy decisions in the press conference.
Brussels -
Much to talk aboutI
- Summit of EU heads of state and government.
The dominant topic is likely to be the EU budget, including the 750 billion corona package, which is prevented from entering into force by the veto from Budapest and Warsaw against the new rule of law mechanism.
Friday Up Arrow Down Arrow
Brussels -
Much to talk about
II
- Second EU summit day.
It will be interesting to see whether there is an agreement - and how the heads of state and government then express themselves in front of the press.