The Myth of the Savings Glut

Commentary Many economists point to the “abnormal” rise in savings as a bullish signal that it will drive a stronger recovery and a consumption boom. The figures look impressive. In the United States, JP Morgan estimates $2 trillion in deposits, up from $1 trillion before the pandemic. In the eurozone, Bloomberg Economics estimates an excess of currency and deposit holdings of 300 billion euros, also double the level seen prior to the COVID-19 crisis. However, the devil is in the details. The allegedly massive savings glut in the eurozone is, in reality, around 4 percent of an average household’s annual income—hardly a glut. It’s even less so when we consider the composition. Most of the increase in savings comes from the wealthiest segments of the economy, according to Eurostat. Furthermore, the household saving rate in the euro area was at 17.3 percent in the third quarter of 2020, compared with …

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