Excess savings of €15bn driving economic rebound, Government officials told

Department highlights impact of pandemic-related savings on consumer spending

Approximately €15 billion in excess, pandemic-related savings is fuelling the current rebound in consumption.

Approximately €15 billion in excess, pandemic-related savings is fuelling the current rebound in consumption, senior Government officials have been told.

In a presentation to coincide with the launch of the Government’s tax strategy papers, Brendan O’Connor, the head of economic research at the Department of Finance, said household deposits, a proxy for savings, have grown by €22 billion during the pandemic.

About €15 billion were “excess pandemic deposits” – that is the growth in deposits above the pre-pandemic trend – he said, noting this equated to about 15 per cent of annual household consumption.

Consumer spending on goods and services jumped by 12.6 per cent in the second quarter of this year as Level 5 restrictions eased and non-essential retail and hospitality reopened. This was one of the largest ever quarter-on-quarter increases in personal consumption.


Mr O’Connor cautioned, however, that the current recovery “remains sectorally uneven” with manufacturing, led by big pharma, and IT increasing output and driving exports while the domestic hospitality and entertainment sectors lagged pre-pandemic levels of activity.

The bounce back has led to a strong recovery in employment, he said, noting those in receipt of the Pandemic Unemployment Payment (PUP) had fallen by 70 per cent since their 2020 peak.


The total number of people receiving income supports of some form or other has fallen from 1.2 million in the second quarter last year to 625,000 in September this year.

He said the short-term indicators – purchasing managers’ indices (PMIs) and consumer sentiment – pointed to a continued recovery in the third quarter of 2021, albeit on a more “modest” level.

In his presentation, Mr O’Connor also highlighted the recent uptick in inflation here and elsewhere.

Euro zone inflation surged to a 10-year high of 3 per cent in August, challenging the European Central Bank’s benign view on price growth, while inflation here also rose to a 10-year high of 2.8 per cent driven by a rise in the cost of transport, housing, restaurants and hotels. UK inflation posted a record jump to hit a nine-year high of 3.2 per cent in August.

Mr O’Connor outlined the key drivers of the current spike in price growth as imbalances between supply and demand linked to strong consumer spending; rising cost linked to supply chain bottlenecks; and base effects from the previous period of lockdown.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times