Central Bank predicts consumers could spend half their €11bn pandemic savings

Deputy governor says younger, less-educated and women workers hardest hit by impact of Covid

Families could spend half the estimated €11 billion hoarded during the pandemic should a recovery begin, the Central Bank predicted on Tuesday.

Household savings grew by as much as €11 billion over the last year as Covid-19 restrictions shut opportunities for workers to spend their cash.

Figures published by the Central Bank suggest that families could spend around half this amount, boosting the economy by a potential €5 billion-plus, if a recovery begins.

An economic letter attempting to calculate how much of the pandemic savings could flow into the economy states that on average families have previously said they would spend around half of any windfall equal to a month’s earnings.


Higher-income families, where earners have held on to their jobs through the crisis, are likely to hold most of the savings, according to the letter, Saving during the Pandemic: Waiting out the Storm? by Reamonn Lydon and Tara McIndoe-Calder.

“We estimate that more than half could be in the top 30 per cent of households by income,” say the authors. “As these savings are more akin to deferred spending than precautionary savings, a relatively high share may be spent in future.”

They estimate that if half the money is spent, it could add €5 billion, or 5 per cent, to consumer spending over time.

Establishing who has saved the cash and how they are likely to spend it as the crisis ends is key to calculating how much of it is likely to make its way to businesses and so on to the wider economy, the letter indicates.

Around one third of the “restricted spending” that wealthier households have saved would normally go on nights out, recreation, culture and sport, and mostly foreign holidays, the letter says.


The Central Bank published the letter as its deputy governor, Sharon Donnery, told National University of Ireland, Galway, that Covid-19 hit younger, less-educated and women workers hardest.

In the second quarter of last year, those with primary or secondary education only were twice as likely to have been unemployed as a result of pandemic restrictions than those who had gone to college or university.

“Younger workers were also severely affected, with almost half the workforce under 25 out of work due to Covid in the first wave of health restrictions in quarter two last year,” she said.

Ms Donnery pointed out that more women than men lost their jobs last year, the opposite of previous downturns, where males were more likely to be unemployed.

The Central Bank deputy governor said that pandemic-related financial difficulties faced by small and medium-sized businesses had not yet resulted in closures and insolvencies.

However, this would leave policy-makers with a delicate trade-off later this year and into 2022. “If traditional insolvency triggers are implemented rapidly, we risk many long-term viable yet currently distressed companies being liquidated, which may increase the long-term scarring of the economy.

Economic damage

“On the other hand, perpetual forbearance and unlimited supports to all distressed small and medium-sized enterprises would also damage our economy through the inefficient allocation of capital.”

Ms Donnery suggested that the Government continue to support businesses until more normal circumstances returned.

She said once companies could trade again it would be “imperative” to allow viable businesses to restructure so they continued to employ workers.

Where it was clear that companies would not survive, she said that barriers to liquidation should be eased to allow business people a fresh start.

Barry O'Halloran

Barry O'Halloran

Barry O’Halloran covers energy, construction, insolvency, and gaming and betting, among other areas