Saving during the pandemic: Waiting out the storm?

Reamonn Lydon () and Tara McIndoe-Calder ()

No 4/EL/21, Economic Letters from Central Bank of Ireland

Abstract: Spending after the pandemic will be influenced by what households decide to do with their ‘excess pandemic savings’. Higher income households likely saved more. We estimate that more than half could be in the top 30 per cent of households by income. As these savings are more akin to deferred spending than precautionary savings, a relatively high share may be spent in future. If half of excess pandemic savings accumulated to date are spent, it could add up to 5 per cent (or €5 billion) to consumer spending over time. Savings could also be reinvested, including to purchase owner-occupied housing and fund home improvements. Spending could turn out to be considerably higher, if there is a swift recovery from the pandemic. Conversely, a slower recovery, with a weaker jobs and income outlook, could encourage households to hold on to more savings for longer.

Date: 2021-03
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