Worried Europeans hoard savings as U.S. consumers boost global economy

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European households are saving at higher rates than before the pandemic, according to data that highlights a clear and persistent divergence with more dynamic U.S. consumers who are driving the Americas' economic recovery.

Savings rates have soared on both sides of the Atlantic during the pandemic as consumers have been forced to stay home. But while Americans have since freed up spending, Europeans have struggled to shake off feelings of economic insecurity following Russia's invasion of Ukraine.

The euro zone household savings rate hit a three-year high of 15.7 percent in the three months to June, well above its pre-pandemic average of 12.3 percent , according to data published Friday by Eurostat.

Although overall interest rates are not directly comparable, the trend is markedly different in the United States, where spending has helped fuel the economic recovery. The personal savings rate was 5.2 percent in the second quarter, below the 6.1 percent average for 2010-19.

The decline in the U.S. savings rate has helped propel consumer spending, which has been the primary driver of U.S. growth and a major reason why the U.S. economy has grown faster than the European economy, said Mark Zandi, chief economist at Moodys Analytics. The American consumer is the engine of the global economy.

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Gross domestic product is on track to grow 2.6 percent in the United States this year, fueled by strong household spending, according to the latest OECD projections, compared with a rise of just 0.7 percent in the eurozone and 1.1 percent in the United Kingdom. .

A sign of continued American expansion, the American economy created 254,000 jobs in September, exceeding analysts' expectations, according to data released Friday.

A strong stock market and high real estate prices have contributed to the growth in U.S. household wealth, Zandi said. In Europe, where shareholding is less widespread, the impact of the rise in stock prices was weaker.

He added that European homeowners have more short-term mortgages, prompting them to save more in anticipation of higher interest payments on new home loans, while many U.S. homeowners are stuck in low interest rates. Historically low interest with fixed interest rates at 15 and 30 years. mortgages.

The broader trajectory of U.S. balance sheets has been much stronger, and so U.S. households arguably found themselves in a position where they felt more comfortable maintaining relatively low savings, Nathan Sheets said , chief economist of the American bank Citi.

The European consumer is just very, very cautious, and the American consumer is much more comfortable spending, spending, spending.

British consumers are also exercising caution. Britain's household savings rate hit a three-year high of 10 percent in the second quarter, well above the 2010-2019 average of 7.5 percent despite downward revisions, according to official data released this week.

Simon MacAdam, an economist at consultancy Capital Economics, said gains in European household wealth during coronavirus lockdowns had since evaporated. He noted that European households are investing more in housing than before the pandemic, which is also pushing up the euro zone's savings figure. Higher wages have yet to boost confidence and spending, analysts say.

An escalation of conflict in the Middle East could contribute to a climate of caution in Europe, which is more dependent than the United States on energy supplies from the Middle East. Slow economic growth has also undermined people's morale; production contracted in the last quarter in Germany.

Europeans are saving more because they remain uncertain about the future, with war looming and Germany in the doldrums, said Samy Chaar, chief economist at Lombard Odier bank. A lot has changed for them, and not in a good way.

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Economists have warned that savings figures are notoriously difficult to estimate because they represent the difference between two uncertain figures, income and consumption, and are often subject to revision.

The OECD projects that harmonized household savings rates net of capital investment in Germany and the euro area will remain above their pre-pandemic average and above those in the United States until the year next at least.

The Paris-based organization for major economies also forecasts higher savings rates in 2025 than before the pandemic in the UK.

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