Economy

ECB Sees No Consumption Boom as Wealthy Hold Majority of Savings – Reuters

The eurozone is not anticipated to experience a surge in consumption, according to a blog post from the European Central Bank (ECB). The bank noted that the savings amassed during the COVID-19 pandemic are predominantly concentrated among the wealthiest households.

This observation could reinforce the ECB’s perspective that inflation is expected to gradually decline towards the 2% target. It may also provide additional rationale for maintaining interest rates after a continuous series of hikes that have brought them to historic levels.

The ECB’s analysis revealed that the top 20% of income earners possessed 49.3% of the excess savings accumulated between 2020 and 2022, with the next income group holding an additional 19.8%. Since wealthier individuals are less inclined to spend any extra savings, it suggests that a significant portion of these funds may remain unused for the foreseeable future.

Moreover, the report indicated that some of the savings have been funneled into financial investments, such as stocks and bonds, or real estate, which are less liquid. The authors of the blog, Niccolò Battistini and Johannes Gareis, emphasized that expectations for a rapid boost in consumption fueled by pandemic savings are likely to be unmet.

“This insight is crucial for understanding the factors driving inflation and the necessary responses of monetary policy,” they stated.

Recently, the ECB opted to keep interest rates steady, and market observers are predicting that cuts may begin in the spring as inflation subsides and economic growth appears to stagnate or possibly decline.

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