International Saving Rates

Definition Net Saving Rates = Gross saving rates – depreciation (consumption of fixed capital) (OECD pdf).

Net saving is also defined as net disposable income less final consumption expenditure.

saving rates

Definition Net Saving Rates = Gross saving rates – depreciation (consumption of fixed capital) (OECD pdf).

Net saving is also defined as net disposable income less final consumption expenditure.

Some countries measure net saving rates. Others like the UK give stats for gross saving rates. Typically gross saving rates will be higher.

It shows there is a wide difference in saving rates amongst economies. Despite an increase in the savings rate since 2008, the UK still has one of the lowest saving rates.

Ireland has a surprisingly high net saving rate. This is because of the fall in consumer confidence since the recession. A few years before the boom years ended Ireland was as low as 2% saving rate.

Germany has consistently had a saving rate of around 10% for the past few years.

Korea has a low saving rate, this is primarily due to the fact the Korean economy is growing strongly and so saving rates tend to fall.

Is is it Good to have a High Savings rate?

  • A high savings rate means banks have more deposits which can be used for the purpose of lending to business for investment. This can lead to a higher long run trend rate of economic growth.
  • High private saving means there is likely to be greater appetite for government debt, making it easier for government to sell bonds and finance its deficit at low interest rates. (though this doesn’t seem to have helped those countries in the Eurozone.)
  • More balanced economy. Countries with low saving ratios tend to have consumer led economic growth and current account deficits (e.g. UK and US from 2000-2007).
  • Low saving rate makes countries more vulnerable to rise in interest rates.

Issues in High Saving Rates

A sudden rise in the savings rate can cause a sharp drop in consumer spending and lower economic growth. This often occurs when there is a fall in consumer confidence during a financial or economic crisis. This fall in spending and rise in saving can cause a further fall in aggregate demand (AD). For example, the sharp rise in saving rates in Ireland, US and UK from 2008 all coincided with an economic recession.

More issues on economics of saving

Net Saving rates

net saving rates

Gross Saving Rates

Gross saving rates

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