Monday, January 14, 2013

14/1/2013: Irish Savings Rates - Q3 2012


Data for Irish Savings rates for Q3 2012 has been released by the CSO (see release here). Instead of rephrasing the release, lets take a look at the underlying data (link to data is provided on page 1 of the release).

First off: household savings and consumption expenditures, seasonally-adjusted:


Per chart above (all in current market prices, so no inflation adjustment, but seasonally-adjusted)

  • Disposable income rose in Q3 2012 to EUR23,002 million - up EUR486mln (+2.16%) q/q after expanding EUR385mln (+1.74%) in Q2 2012. This is good news. Year-on-year, income is up EUR1,158mln (+5.30%) and this follows up on EUR823mln increase y/y in Q2 2012 (+3.79%).
  • Historical comparatives for total disposable income are also looking good. Average income since Q1 2008 was EUR22,984mln, so we are close to that in the latest figures. We are also ahead 2010 average (EUR22,198mln), 2011 average (EUR21,693mln), but below 2008 average (EUR25,061mln) and 2009 average (EUR23,310mln).
  • Final consumption expenditure in Q3 2012 stood at EUR19,319mln up EUR64mln (+0.33%) q/q partially reversing decline of -EUR77mln (-0.40%) q/q in Q2 2012. Year-on-year, consumption spending was up EUR217mln in Q3 2012 (+1.14%) after posting a y/y decline of -EUR165mln (-0.85%) in Q2 2012.
  • In longer range averages terms, latest consumption reading is just about at the average level for 2012 (EUR19,302mln), slightly below 2011 average of EUR19,362, and below 2008 average (EUR22,264mln), 2009 average (EUR19,836mln) and 2010 average (EUR19,532mln).
  • Gross household savings stood at EUR3,684mln in Q3 2012, up EUR423mln (+12.97%) q/q and this follows EUR463mln rise (+16.55%) in Q2 2012. Year-on-year, household savings rose EUR942mln (+34.35%) in Q3 2012 after posting a EUR988mln (+43.47%) y/y rise in Q2 2012/
  • So far, Q1-Q3 2012 average savings run at EUR3,248mln - ahead of all annual averages, save for 2009 when they reached EUR3,475mln.

Saving ratios:
  • As the result of the above, the household savings ratio (ratio of gross savings to total disposable income) rose from 14.48% in Q2 2012 to 16.02% in Q3 2012. This represents an increase of 1.53ppt q/q (following a 1.84% rise q/q in Q2) and a y/y rise of 3.46ppt (down from the y/y rise of 4.00% in Q2 2012).
  • Longer-term comparatives suggest the return of strong precautionary savings motive (as shown in the chart below). More specifically, adjusting for growth variation in Irish GDP, longer-term savings ratio consistent with economic recovery for Ireland should be in the range of 8.6-11.9%. We are now well above that range. More significantly, even taking shorter period deleveraging pressures in 2008-present crisis, the savings ratio averages at around 14.10%, lower than the current 16.02%. 2012 average savings ratio through Q3 is 14.38% against 2008-2011 average of 11.9%. By all metrics, Q3 2012 looks like a return of the precautionary savings motive for households.


However attractive it might appear to make an argument that savings ratio is too high amongst Irish households, one must consider the fact that our households are:
  1. Under immense pressures to deleverage out of extremely high debt ratios (an objective consistent with banks stabilisation objective of the Government and with Troika concerns about debt levels, as well as with the goal of restarting household investment cycle)
  2. Household savings = banks deposits and I doubt there is out there a single Irish politician brave enough to suggest we need less of the latter
  3. Current act as the main driver for supporting gross national savings from complete and total collapse. Do recall that national savings = national (domestic) investment (ex-FDI). And do recall that in Ireland, SMEs are funded by domestic savings (at least equity, non-debt funding component). Which means that were we to have meaningful investment activity here, we need to encourage and support, not discourage and tax, savings.
On this note, let's take a look at seasonally unadjusted data for aggregate savings in the economy:



The chart above shows clearly that:
  • Total savings in the economy declined to EUR7,320mln in Q3 2012 (down EUR559mln or 7.09%) q/q, but rose EUR1,747mln (+31.35%) y/y. In Q2 2012 there was an annual rise of 28.71% or +EUR2,199mln.
  • Excluding financial corporations, the real economy's savings fell EUR452mln (-8.05%) q/q in Q3 2012, but a re currently up EUR1,851mln (+55.84%) y/y, against Q2 2012 annual rise of EUR910mln (+19.3%).
  • The chart above shows that once we exclude financial corporations, savings actually are running much closer to long-term trend and that the trend is moving up, toward rising savings once again. This upward trend was established around Q1-Q2 2011 and as we shall see shortly is not necessarily signalling a major departure from the long-term established trends (se chart below).
The decomposition of savings into sectors shows that:
  • Household savings rose modestly q/q in Q3 2012 (absent seasonal adjustment) and are up significantly y/y (+26.6% in Q3 2012), although that rise was well-matched by 26.0% increase in Q2 2012.
  • General Government continued to dis-save (accumulate debt) in Q3 2012, shrinking national savings by EUR2,331mln (more than 9 times the rate of dissaving, as the rate of saving in the households). Year on year, the Government has managed to post EUR423 increase in dissaving (+17.2%).
  • Financial Corporations also showed dis-saving in Q3 2012 or EUR107mln compared to Q2 2012 and EUR104mln (4.6%) compared to Q3 2011.
  • Non-Financial Corporations posted savings of EUR4,930mln in Q3 2012, up EUR1,606mln (+48.3%) on Q2 2012 and up EUR1,215mln (+32.7%) on Q3 2011. 
  • Thus, savings increase in Non-Financial Corporations outpaced savings increase amongst the Households by the factor of almost 6 in quarterly terms and by 1.2 in annual terms. If the Irish Government (and some analysts) are concerned with high savings rates, they are better off targeting companies accounts not household ones. But I doubt they are likely to start calling for a savings tax on MNCs.


Two charts below show long-term trends in savings components by sector. I reproduce two charts to show best-fit models and comparable models.



The charts above very clearly show that since about mid-2005, long term trend in Government savings diverged from those for Non-Financial Corporations and Households. Specifically, National savings became positively dependent on Households and real Companies and negatively impacted by the Government. In other words, current high Household savings rates are a saving grace for the economy that suffers from extreme pressures of Government deleveraging.

The third chart above clearly shows that Households contribution to total savings in the economy counter-moved with Government contributions, supporting the overall savings activity. In fact, correlation between Government savings and Household Savings averaged remarkable -0.91 in the period 2002-present and statistically-indistinguishable -0.89 since Q3 2006 through present. Over the same period of time, correlation between Government savings and Non-Financial Corporations savings runs at slightly lower -0.88 historically and -0.86 since Q3 2006.


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