Faced with the war and record inflation, more and more Belgians are being forced to reduce their savings. Some are even forced to dip into their savings to pay their bills.
Is Belgium becoming a country of spendthrift cicadas? According to the latest figures from the National Bank, the household savings rate continued to decline in the last three months of 2021 to stand at 12.5%, compared to 14.3% over the same period in 2020.
Is Belgium becoming a country of spendthrift cicadas? According to the latest figures from the National Bank, the household savings rate continued to decline in the last three months of 2021 to stand at 12.5%, compared to 14.3% over the same period in 2020. total, over the past year as a whole, this share of unspent and set aside household income fell back to 16.4% after posting a historic peak of 20.1% in 2020. In reality, it was even went so far as to cross the 25% mark in the second quarter of 2020, almost double what it was before the start of the coronavirus crisis in Belgium. Normal? Macro-economist at the BNB, Geert Langenus explains these declining figures by a dissaving which was foreseeable: “A savings rate above 20%, as we experienced during the covid crisis, is completely abnormal. It is a reflection of what the economic literature calls forced saving. During the pandemic, the economy was largely shut down. We were unable to travel, go to the movies, listen to concerts, etc. In the At the same time, the majority of the population suffered a very limited impact on their incomes.From a macroeconomic point of view, this led to a savings surplus of around 25 billion euros over the whole of 2020. In fact, there was a savings bubble. And the situation normalized in the course of the last year to return more or less to a pre-crisis level, as expected.” Economist and founder of the management company Orcadia, Etienne de Callataÿ extends the reasoning: “Two main reasons explain this drop in the savings rate. The first is indeed the forced savings observed in 2020, which results from the fact that households have not been able to spend as they wish, in particular on leisure, travel and restaurants, or simply because the shops were closed.The second reason is the precautionary savings of 2020. By savings precautionary measure, we must hear the households which, faced with uncertainty, not knowing what was going to happen to their professional income, have put more money aside.Today, with the normalization of the economy and a healthy labor market, many households can afford not to keep pears for thirst.” But, he adds, “at the same time, some households, which have the most to suffer from the rise in energy prices, find themselves forced to dip into their savings. All in all, these two phenomena explain why households save less today”. The war in Ukraine and soaring energy prices, but also the aftermath of covid and shortages, are indeed pushing the price of goods and services to heights rarely reached for 40 years. So much so that nearly six out of ten Belgians say they feel that their life has become between 1 and 10% more expensive, and that for more than four out of ten consumers the increase exceeds 10%. This is revealed by a recent survey carried out by the bank ING, which analyzes the feelings of the Belgian population and their behavior in the face of galloping inflation. A situation that sees nearly half of Belgians having started to reduce their daily expenses, particularly in terms of food, clothing and leisure, and that more than half of them heat their homes less. Some, again according to the survey conducted by the bank with the orange lion, are also reducing their savings. More than a third of respondents say they put less money aside: 14% of the population even say they have withdrawn money from their savings account. “Astonishingly, observes Charlotte de Montpellier, senior economist at ING Belgium, while Belgium is one of the only countries in the world where an automatic indexation mechanism protects income against changes in inflation, Belgians believe that their financial health has deteriorated as much, or even more, than their counterparts in other European countries. Could Belgian savings therefore deteriorate further in 2022? “It’s not impossible but it’s hard to say, believes Geert Langenus. It is true that extremely high energy prices are forcing some households to dip into their savings to pay their bills. But there are also many uncertainty due to the war in Ukraine. The latest indicators point to a drop in consumer confidence. Precautionary savings due to this fear of the future could compensate for this phenomenon of dissaving linked to the rising prices. In addition, interest rates are rising, which may also encourage more savings.” What about the impact of the regulated savings rate, which has become, as we know, ridiculous in Belgium? With 0.11% on the booklet and inflation of 9.5%, a saver sees his purchasing power erode by almost 10% in one year. And yet, the outstandings on the booklet remain important, always turning around 300 billion euros. “The low interest rates may encourage some to save less but, a priori, this remains marginal, maintains Etienne de Callataÿ. Two elements play in opposite directions in terms of the impact of interest rates on the volume of savings. Firstly there is the substitution effect according to which it is useless to save when the savings do not bring in anything. Then there is what is called the income effect: if savings bring in little, one must save more to achieve a certain future purchasing power. All in all, the influence of low interest rates on savings behavior seems to me to be relatively weak.” On the other hand, notes the chief economist of Natixis Patrick Artus, “it will be necessary to reduce the public deficits which have increased significantly in OECD countries during the covid crisis, to support households and businesses, and now with the war in Ukraine, and the increase in public military spending, industrial relocations, energy transition, support for purchasing power with the rise in energy prices. We must therefore expect, in the future, a increase in taxes which, if rationally anticipated, should lead today to an increase in household savings”. To the question of whether Belgium is therefore becoming a country of cicadas, the answer is therefore clear: no! Especially since “it is not because the savings rate returns to a more usual level that households are no longer saving, explains Geert Langenus. Many Belgians have taken advantage of the pandemic to use part of the savings they had accumulated during this period to invest in renovating their homes. the year 2021, compared to around 9% in 2020. More and more, Belgians are also moving towards more profitable investments than the savings account (shares, investment funds, etc.). Same conclusion from Etienne de Callataÿ: “Belgium is historically a country of ants, with a savings rate well above the European average. This trend has diminished over time but not to the point of becoming a country of cicadas for all that”.