Ireland’s Savings Ratio according to Bank of Ireland’s Monthly Bulletin
- The ratio was thought to be in double-digits
- Latest CSO figures show big fall in last few years
Consumer spending in Ireland fell by over 2% in the first half of the year, bringing the decline over the past four years to 10%, which may go a long way to explain why most people still refer to ‘the recession’ even though Irish GDP bottomed in late 2009 and has recovered some ground since. Falling incomes are seen as the key factor behind this fall in consumption but there is also a widely held view that households are saving more and attempting to repay debt; the stock of mortgage debt is indeed falling and outstanding credit card balances currently stand around €2.5bn from some €3bn at the peak of the cycle, according to Bank of Ireland’s Monthly Bulletin published today, 9 October 2012.
Author of the Bulletin, Dr. Dan McLaughlin, Group Chief Economist, Bank of Ireland said: “The savings ratio as reported by the CSO in the quarterly sectorial accounts also support the view that households are spending a smaller proportion of disposable incomes; the ratio rose to 13.9% in 2011 and to 14.2% in the first quarter of this year from 7.6% in 2007. Savings in this context simply means that portion of disposable income not spent, so it need not equate to a flow into ‘savings products’ as a decision to repay debt, and hence reduce spending, would emerge as a rise in the savings ratio.
“Some analysts put great store on the savings ratio as a key driver of consumption, including the IMF, who recently produced research on the Irish economy based on the view that the savings ratio would remain high for some time, declining only slowly from an estimated 14% in 2011, hence dampening consumer spending in the short-term but acting as a potential support for consumption in the future. Unfortunately for this theory, the CSO recently published updated estimates for the savings ratio on a national accounts basis, as used in the IMF study, which shows a dramatic fall in the ratio over the last few years. This measure, known as the net savings ratio, shows a fall from 11.4% in 2009 to 6.8% in 2010 and 5.4% in 2011 and hence implies a very different picture to that often painted – Irish households appear to have reacted to the plunge in disposable incomes by reducing their savings in an attempt to support consumer spending. In the absence of data revisions (which are quite possible) the latest figures do not support the idea that consumer spending could receive a big boost from a reduction in the savings ratio, nor the view that it is still unusually high,” concluded Dan McLaughlin.
Related document: – 120 KB