Households saved 14.1pc of their incomes in the last quarter. The trend of putting away extra money began during Covid but has continued since, with the savings rate averaging around 14pc since the middle of 2022.
This means even though real incomes have been rising, consumption and spending are not keeping pace.
Ireland’s ageing demographic means the working-age population is going to peak in 2045 and then decline, leading to the savings rate increasing further, according to Robert Kelly, director of economics and statistics at the Central Bank.
“Looking at the working age charts, we expect more and more savings. An ageing population saves more,” he said. “Also, auto enrolment of pensions just came in. There is going to be more and more accumulation of savings within the economy, and we need to think about that, along with [investment] in public infrastructure.”
The official definition of household savings includes buying assets such as new homes, paying off debts and paying into pensions, as well as putting money on deposit in banks. Central Bank figures show that households’ net deposits into banks in Q3 were up by €1.3bn.
Looking at the working age charts, we expect more and more savings
Given that most of this money is in low-interest accounts, and that there is a need to invest in infrastructure and start-up businesses, more thought is now being given about how to incentivise households to use their savings differently.
“We are now at €160bn on deposit in banks, and it’s not necessarily that productive. The only way that money makes its way back in is through the bank-lending channel,” Mr Kelly said.
“There’s a limited capacity in how that can be used. I will let Government decide what are the right incentives, but we need to think about how we deepen the pool.”
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The recent report on competitiveness in the EU by Mario Draghi identified an €800bn investment gap, which represents almost 5pc of the EU’s GDP. Mr Draghi suggested that money would not come from the public purse but mostly from the private sector.
Mr Kelly said Ireland needs to think about how to diversify the savings pool, including how to allow households get access to mutual funds, for example. “Some of that becomes about incentivising through tax policy – whether that be capital gains tax, or restrictions on in and out,” he said. “People are talking about a number of ways in which there are frictions in the [tax] system to stop people investing, be it in equities or mutual funds.”
We need to think about how we deepen the pool
He said governments have a role to play in helping to move savings into productive capital, but there are other elements too, such as changes to the European infrastructure in terms of creating the right products. At present, home ownership is the most highly incentivised asset class.
“We would see more consumption if the savings rate falls,” Mr Kelly pointed out. “If we see the savings rate remain elevated, and that’s used to create infrastructure, for example, then we are all of a sudden creating this space again, just through a different means.
“Instead of there being slightly less consumption, we’re seeing [the savings] come through the investment channel. We have to make sure that there is nothing that stops it smoothly going from what could be consumption into investment, if we think that’s what households want, and if they want to make more precautionary savings.”
The most recent Consumer Expectations Survey published by the European Central Bank (ECB) showed a strong preference for saving among Irish consumers, and pointed out that this preference has only increased in recent years.
The Central Bank’s last quarterly bulletin forecasts that the savings rate will grow modestly over the next two years, averaging a rate of 15.6pc between 2024 and 2026, above its historical norm.
“From a broader perspective, sustainably mobilising household savings across the EU for investment in Europe’s – including Ireland’s productive capital stock – would also enhance the resilience of households, businesses and the economy as a whole,” the bulletin said.
