SYDNEY—Households around the world responded to the coronavirus pandemic and its related effects by sharply boosting their savings. What they do with that cash could help shape the global economic recovery.
Saving rates in many countries soared last spring as governments pumped stimulus money into people’s pockets and consumers trimmed their spending because of business closures, infection fears or lower expenses while working from home.
That left many consumers—particularly the middle-income and affluent—with less debt and more cash to burn as restrictions on activities are eased.
If they open their wallets readily, that could unleash a wave of pent-up demand that spurs strong growth in the short term. But if they hold back, they would restrain the economic recovery initially but have fuel for more spending in the longer term.
Data from some countries suggest the rapid rebound is partly happening: In the U.S., the personal saving rate—seasonally adjusted and annualized—rose to a record 33.6% in April when restrictions peaked, but fell to 14.1% in August. That is still well above the 8.3% rate in February, before the pandemic hit, suggesting that while households were spending more by late summer than in the spring, they hadn’t fully resumed their old habits.
A look at some other saving rates around the world illustrates the challenge policy makers face in prodding consumers to loosen their purse strings.
Japan’s government earlier this year handed out the equivalent of $950 to every resident. In an NLI Research Institute survey, half said they would put it aside for everyday household expenses—which could include saving—and a quarter said outright they would save it, according to a July report from the institute’s Naoko Kuga.
Policy makers around the world are trying to prod consumers to loosen their purse strings. A shopping center in Sydney last month.
Photo:
Rick Rycroft/Associated Press
“The fact is that it has been difficult to actually spend a lot of money,” said Stephen Halmarick, chief economist at
Commonwealth Bank of Australia.
“Confidence is also fragile, and nobody knows how long it will be before we get a vaccine and learn to live with the virus, so saving a good amount of the income flow makes a lot of sense.”
Household savings as a proportion of income in Australia jumped to 19.8% in the second quarter versus 3.6% in the final three months of last year, while in Canada the saving rate climbed to 28.2% in the second quarter, compared with 3.6% at the end of December.
“Policy makers can try and encourage spending, but you can’t force spending,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets.
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