There is no sign of consumers drawing significantly on the massive savings built up since the start of the Covid pandemic, even as costs rise and inflation eats away at the value of deposits.
New report from employers’ group Ibec says that the fact that these savings are concentrated in the wealthiest half of households suggests greater efforts should be made to target government support to meet rising costs for the other half of households deal with.
In its latest economic outlook released today, Ibec said it expects overall consumer spending to hold up this year, even as shoppers cut discretionary purchases, particularly in areas like entertainment, and invest more to cover energy and other bills will.
This ties into a separate study by the Bank of Ireland – its regular Economic Pulse bulletin finds that Irish households are becoming increasingly pessimistic about their own finances.
While inflation-buyers will get less for more euros, Ibec doesn’t anticipate a fall in overall household spending, which happened after the global financial crisis, when unemployment and emigration skyrocketed.
The broader economic outlook includes a significant downward revision in growth estimates for this year and an upward revision in inflation, but still expects the Irish economy to grow by around 4.3 per cent this year.
Irish households are entering this period with record savings, which will peak in the first half of 2021 at 17 per cent of household income.
February figures showed savings continued to grow, but at a slower pace ahead of Russia’s invasion of Ukraine, totaling 142 billion euros, or 28,000 euros per person.
“While the reopening of the economy in early 2022 has resulted in some deceleration in deposit growth (to 9 percent per year), we have yet to see a significant decline in existing savings,” the Ibec report said.
Ibec Chief Economist and Head of National Policy Gerard Brady said the global environment will weigh on Ireland’s growth this year and next, with rising energy costs, record high commodity and transport costs and global supply chain challenges leading to a slowdown of business investment and lower than previously expected consumer spending.
“Responses to support households and businesses must be very well targeted if we are to avoid fueling the inflationary fire.
“At the same time, premature or misjudged monetary policy responses could trigger an unnecessary economic contraction.”
