Irish households prepare for financial squeeze by saving more

Irish households appear to be bracing themselves for a winter of financial hardship by saving more of their disposal income. Central Statistics Office (CSO) figures show households in the Republic set aside or placed on deposit more than 19 per cent of their income in the second quarter of this year.

Before the pandemic, households saved about 10 per cent of their disposable income, with consumer spending making up the other 90 per cent.

The Covid crisis triggered a surge in savings with households placing an additional €16 billion on deposit. By the end of May, the total Irish household deposits of €144 billion were 30 per cent higher than at the onset of the pandemic.

The latest figures suggest consumers have continued to save even after the lifting of restrictions and the removal of wage supports.

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“The high level of saving may be precautionary as global economic uncertainty affects spending decisions,” the CSO said.

However, the office also noted that the increased savings rate may also be caused by shortages of goods (such as cars) owing to supply chain disruption related to the pandemic.

“Finally, it is possible that household saving levels will remain elevated: 19.1 per cent is a high saving rate for Ireland but is in line with some other European countries,” it said. In Germany, the saving rate for the period 2010-2019 was 17.5 per cent and in Switzerland it was 22 per cent.

The latest CSO numbers suggest higher average earnings per worker and more people in work drove up incomes in the second quarter. Spending also rose in the quarter, due to higher prices but also higher volumes of goods and services consumed.

For households collectively, disposable income rose faster than consumer prices, although the CSO cautioned that this was not the case for every household.

In the first half of 2022, consumption accounted for only 80 per cent of income, with the remainder being added to wealth, the agency said.

Separately, fresh CSO data on planning permissions shows permission was granted for 11,374 new homes in the second quarter of this year, 2 per cent up on the same period last year, suggesting the pick-up in residential construction is continuing despite the price squeeze in the market.

Of the total, 39.8 per cent (4,532) were for houses and 60.2 per cent (6,842) were for apartments. The number of houses granted planning permission grew by almost 17 per cent on an annual basis to 4,532 units, while in contrast, there was a decline of almost 6 per cent in apartment approvals to 6,842 units.