Household savings at ‘an extraordinary level’

Household savings stood at at "extraordinary level" in the third quarter of the year, the Central Statistics Office (CSO) said in a report on Friday.

The report, Quarterly Institutional Sector Accounts Non-Financial, noted that the three months from July to September coincided with some earlier Covid-19 restrictions being lifted.

It saw a gross savings ratio – the proportion of gross disposable income that went unspent – of 21.4 per cent.

This compared to 14.5 per cent a year earlier and, despite being lower than in the second quarter, is considerably higher than the long-term average.

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“More people went to work and more shops were open. Compared to the second quarter of the year, after seasonal effects are removed, the economy grew by 10 per cent and consumer spending rebounded by 22 per cent.”

The CSO said a comparison with the third quarter of 2019 is also revealing. Before seasonal adjustments, spending was down but gross income was up. This produced higher household savings.

Household disposable income meanwhile was supported by Government intervention.

“This saving is for households collectively and does not show the wide range of economic changes individual households experienced in the period,” noted the report.

The CSO said household disposable income was sustained in spite of the closures of many businesses due to Covid-19.

“Looking at the change in key transactions of Government and households since the third quarter of 2019, it is apparent how expenditure of Government supported household incomes,” the report added.

The CSO noted that the economy grew by 10 per cent on the second quarter.

Earnings of employees declined despite having been supported by Government wage subsidies, while company profits increased significantly.

This increase in profits was linked to higher net exports, and specifically a large decline in imports.

“The reduction in imports is partly due to less on-shoring of intellectual property in this quarter, and partly due to previous imports of intellectual property bearing fruit (as seen in the reduced royalty and licence service imports in the international accounts),” it said.

Government receipts of taxes were down compared to the same period in 2019, and expenditure was up, leaving the sector a net borrower in the quarter.

The Economic and Social Research Institute (ESRI) observed in a new report this week that the economic shock from Covid-19 was felt more suddenly and deeply by the Irish economy than the financial crisis, but the quick reaction of governments and central bankers means the rebound will be faster.

The institute also predicted that shoppers could spend an extra €9 billion next year as they tap into cash hoarded through the Covid-19 crisis.

The institute estimated that a sharp fall in spending prompted by Covid-19 lockdowns boosted savings this year to about €25.5 billion.

However, the ESRI’s economists said that unemployment could remain high through 2021, running at 15 per cent during the year, while it is likely to fall to 10 per cent in 12 months’ time.