Facebook Blogging

Edward Hugh has a lively and enjoyable Facebook community where he publishes frequent breaking news economics links and short updates. If you would like to receive these updates on a regular basis and join the debate please invite Edward as a friend by clicking the Facebook link at the top of the right sidebar.

Tuesday, June 27, 2006

German Business Optimistic, While Individual Germans Save Rather Than Spend

The latest Ifo index, made public this morning, jumped from 105.7 in May to 106.8 in June: German business is happy. And little wonder if you look at those global growth rates mentioned in my last post, and think about the fact that German industry is export driven.

But in the unemployment lines, and among those about to lose the extra payments allowances brought to them by Hartz IV, things may look a little less rosy, Germans in general, it seems, are saving at very high levels, and seem set to continue to do so as they get older and older, and with an extra 3 percent VAT charge coming in next year, it's hard to see those lines getting any shorter, not any time soon at any rate:

The savings rate of German private households – savings as a share of disposable incomes – reflected "rational behaviour", given the country's future pension requirements, Axel Weber, Bundesbank president, said on Monday. Although high by US or UK standards, Germany's savings rate was not abnormal by historical standards or in comparison with other European countries.

The trend rise in Germans' savings ratio has acted as a brake on consumer spending – which remains the Achilles heel of Europe's largest economy, even as its industrial sector enjoys a export-led renaissance.

In sharp contrast, the French economy, which faces similar problems with high unemployment and labour market reform, has seen growth boosted in recent years by consumer spending, with the French reducing the share of their incomes that they save.

In 1970s West Germany, the savings ratio of private households averaged more than 14 per cent. In the 1990s, for reunited Germany, the ratio averaged more than 11 per cent, before falling to a low point of 9.2 per cent in 2000. Since then, the ratio has risen steadily to 10.7 per cent last year. In France, the trend might be downwards, but its savings ratio last year – at 11.6 per cent – was still higher than Germany's. Italy's was even higher at 12.1 per cent. The ratio in the US and Canada was negative.

The steps Germans are taking to increase their private provision for old age were revealed in a breakdown of the private households' financial assets published yesterday by the Bundesbank. This showed pension entitlements accounting for more than 30 per cent of assets last year, compared with little more than 20 per cent in 1970.

1 comment:

Antonia said...

That is a practice other nations' citizens should emulate. You can't save too much for the rainy days. Then, at least, you won't go into debt in the future.