ECB: Eurozone Households Will Continue to Save to Rebuild Their Wealth

Forex - The ECB stated that households in the euro area will continue to save in order to rebuild their wealth. The European Central Bank argued that due to high inflation, households in the euro area could continue to save a large portion of their incomes to rebuild the wealth they have lost, suggesting that sluggish consumption will continue to exert pressure on growth in the near term. The fact that European families sit atop a growing pile of savings undermines hopes that consumer generosity will revitalize the region's stagnant economy. In its Economic Bulletin article published on Wednesday, the ECB said, "While the savings rate is expected to remain high in the near term, it will be somewhat lower than its recent peak, which partially reflects moderate interest rates.” Euro area households saved 15.7% of their disposable income in the most recent period for which data is available, the second quarter of last year, significantly above pre-pandemic levels of around 12% to 13%. This situation is putting pressure on consumption and has led to overall economic growth hovering just above zero for just over a year, despite the ECB's repeated forecasts of a consumption-led recovery. The bank stated that the primary culprit is the increase in inflation that eroded households' real wealth in 2021/2022. The ECB noted, "With the rise in inflation, households' real net wealth has decreased over the past two years, and this has increased the incentives for them to rebuild their wealth." The recovery in real incomes and high real interest rates have also boosted savings.