Household Savings Rate Compared

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George Dorgan
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We critized GDP growth that in many Western economies (e.g. Greece) has become mostly an indicator of consumption and activity.

We emphasized that GDP growth in the form of consumption-driven (hyper-) activity (aka Bawerk’s “GDC” Gross Domestic Consumption) must finally lead to a depreciating currency, inflation, falling government bond prices and wealth in real terms. Instead, GDP should be driven by investment and the consequent improvements in productivity.
As opposed to GDP growth, the savings is rate is able to:

• Measure the change in wealth. Wealth is increased by net national savings each year plus/minus a certain valuation effect. Wealth may consist of assets, either in the form of fixed (machines, homes, state investments, infrastructure) or financial investments, either the ones of the private sector or the ones of the state, like state pensions.
• The savings rate ignores the valuation effect of wealth. People in many advanced economies seem to rich just because they sit on a real-estate bubble caused by central banks.
• Savings are the basis for investments; building productive capacity is for us the major driver of an economic future. Even if banks may create credit out of “thin air”: nowadays countries with low savings have low investments too.
• As opposed to GDP, the savings rate is able to measure savings that are not invested in the local economy. Switzerland and recently China are building a second productive  economy outside of the home country, but owned by Swiss firms.
• As opposed to GDP, net national savings can quantify the desire to be less active and to consume less today but to postpone consumption to the future.
• Higher savings and lower consumption lead to current account surpluses and safety against currency devaluation and inflation.

We provided detailed graphs for

• the savings-driven economies based on the so-called Net National Savings Rate (NNS), that comprised many East Asian economies and the oil producers.
• and the consumption driven economies, that included most of our Western economies.

Here we would like to give an update for the Household Savings Rate, collected by the OECD.

High Savings Countries The massive Chinese savings rate remains impressive. Switzerland has a high savings rate for decades. Russia and Norway are the two oil producers in the OECD statistics. Both Sweden and Australia have increased their savings rate in recent years.
Moderate Savings Countries Both Germany and France have a relatively stable savings-rate for 20 years. During the real-estate boom, the Dutch reduced their savings-rate. Recently it has been increasing. Korea has not followed not yet Japan in its trajectory as a capital consuming society.
Low Savings Countries The United States is already for three decades a low-savings country. So are Canada, New Zealand. Italy has reduced its savings rate from over 15% in 1995 to 2.91% in 2015. The main reason is certainly the low interest rate since the euro introduction, compared to high lira rates. A similar movement applies for Mexico and Spain. They halved their savings rate compared to 20 years ago.
Countries with a negative savings rate Negative savings occur in different cases: Capital consumption, ageing society: Japan has an ageing society. Previously saved income is consumed. In 1994 they still saved 14%. Emigration countries: Latvia, Greece and Portugal have high emigration. Since the euro introduction, they have become addicted to transfer payments from Germany (e.g. TARGET2) or on payments from nationals abroad. Excessive spending countries: Ireland and United Kingdom are countries with excessive spending, either for real estate or for consumption.

About George Dorgan

George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.

My articlesMy siteAbout meMy books
Follow on:LinkedINTwitterSeeking AlphaCFA SocietyEconomicBlogs