Irish households were saving more of their monthly disposable income than any other euro zone country at the height of the Covid-19 shock in 2020, according to Central Bank data.
The State’s households savings ratio peaked at 25 per cent in 2020, a multiple of the average 10 per cent rate posted for the previous three years, researchers at the bank said in an economic note published on Wednesday.
By the end of May this year, Irish household deposits stood at €144 billion, almost 30 per cent higher than at the onset of the pandemic, the note said.
The authors of the report, Simone Saupe and Maria Woods, said, however, that the Irish household savings rate, which had declined to 19 per cent as of the first three months of this year from a peak of 33 per cent in the second quarter of 2020, and stock of deposits may decline over the near term as real household income is eroded by soaring living costs.
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Still, they said that current economic uncertainty, amid the war in Ukraine soaring inflation, may lead households that can afford it to increase precautionary savings.
However, they warned that over the longer term, an increasing old-age dependency ratio in Ireland could reduce the population’s capacity to save.
The Economic and Social Research Institute (ESRI) warned last month that Irish households were facing the biggest drop in living standards since the 2008 financial crisis as earnings from work fail to keep pace with soaring inflation. The institute also forecast a possible slowdown in house price growth on the back of rising interest rates.
With inflation expected to average over 7 per cent this year and earnings expected to grow by just 3.5 per cent, real incomes would contract by up to 4 per cent, the ESRI said, representing the biggest drop in living standards since the 2008-2009 period when the economy imploded in the face of a global credit crunch.
Still, the institute said the Irish economy was continuing to perform strongly and would grow at a rate of 6.8 per cent in gross domestic product (GDP) terms this year and by 4.8 per cent in 2023 on the back of strong exports from the multinational sector.
