The savings accumulated during the pandemic have hardly been used for consumption and the trend will continue for the foreseeable future. "It cannot be expected that this extraordinary stock market will provide a very significant boost to aggregate household consumption in the coming quarters", indicates the article published this morning by the Bank of Spain in which it analyzes the savings cushion accumulated during the mandatory pandemic. It also adds that, encouraged by the increase in variable mortgage rates, it is most likely that they will be used to repay loans.
It is a future trend, which also follows the one that has been observed since the outbreak of the pandemic, in 2020. The savings accumulated during the pandemic have hardly been used for consumption and go mainly to investment in deposits and investment funds. 80% of the accumulated amount between the beginning of 2020 and the end of 2022 was allocated to financial investment, and another part, already smaller, to investment and repayment of loans. These savings had been forcibly stored when the drastic restrictions on mobility and activity led to a collapse in consumption, to which was also added a part motivated by precautionary concerns given the great uncertainty prevailing at that time.
In 2020, the savings rate of Spanish households reached almost 18% of their gross disposable income, more than double that of a year earlier; and it was reduced to 14% at the end of 2022, which represents about 100,000 million euros. The article on "The evolution and destination of extraordinary savings accumulated by Spanish households since the start of the pandemic" shows that extraordinary financial investment was concentrated in 2020 and moderated significantly in 2021, to fall last year. Instead, gross capital formation and loan amortization carried out the reverse process, that is, it increased in 2021 and 2022 in relation to the reference year, 2019.
Regarding financial investment, it was initially channeled into cash and deposits, and later, as the climate of uncertainty lessened, participation in investment funds gained ground. Households also used part of their accumulated savings to repay loans taken out to buy a home, a trend that is on the rise, partly motivated by the increase in variable-rate mortgages.
In addition, the article also points out the very unequal distribution of accumulated savings according to income. Households with higher incomes concentrate a very high proportion, while, at the other extreme, the 20% of lower-income households barely increased their savings during the pandemic period. The reason is that workers with higher incomes were less affected by the pandemic because they are underrepresented in the sectors that suffered the most from the impact of the pandemic, and also that the spending that could not be carried out (goods and services that require more to be consumed) mobility and social interaction, weighs more in the consumption of higher incomes.
