Euro zone households could keep saving a large portion of their income to rebuild wealth lost to high inflation, the European Central Bank argued, suggesting lacklustre consumption will continue to weigh on growth in the near term.
European families are sitting on an ever-growing pile of savings, confounding hopes that consumer largesse will kickstart the region's stagnant economy.
"The saving rate is expected to remain high in the near term, albeit somewhat lower than its most recent peak, partly reflecting the moderating interest rates," the ECB said in an Economic Bulletin article published on Wednesday.
Euro zone households saved 15.7% of their disposable income in the second quarter of last year, the most recent period for which data is available, well above levels around 12% to 13% before the pandemic.
This has been weighing on consumption and kept overall economic growth hovering just above zero for just over a year, despite the ECB repeatedly predicting a consumption-led recovery.
The main culprit is the 2021/2022 inflation surge which eroded the real wealth of households, the bank said.
"With the surge in inflation, households’ real net wealth declined in the past two years, increasing the incentives for them to rebuild their wealth," the ECB said.
A rebound in real incomes and high real interest rates have also boosted savings.
However, the ECB maintained its view that household spending would eventually recover.
"The likely downtick in the saving rate together with continued strong growth in real labour income are expected to help the momentum of private consumption," the ECB said.
