Euro area household saving rate remains elevated amid income shifts

After a post-pandemic decline, the euro area household saving rate increased significantly from mid-2022 to mid-2024, reaching 15.4 percent.

It has since remained broadly stable at this elevated level, well above its pre-pandemic average of 13 percent.

Initially, this rise was primarily driven by accelerated growth in real disposable income, particularly from non-labour sources such as self-employment income, net interest income, dividends, and rents.

Net fiscal income, stemming from energy price shock support measures, also provided a substantial boost.

These factors disproportionately benefited higher-income households, who typically exhibit a greater propensity to save.

Since mid-2024, the saving rate's stability reflects a normalisation in real income and consumption dynamics, with robust growth in labour income – driven by real wage catch-up and sustained employment – offsetting the decline in non-labour income and the gradual withdrawal of fiscal support measures.

Empirical estimates suggest that the elevated saving rate over the past year has been supported by strong real labour income growth.

This upward push has not been fully counterbalanced by the negative contributions of declining real interest rates and improving real net wealth positions.

Prior to the pandemic, higher real income generally increased the saving rate, as consumption did not adjust proportionally.

Conversely, increases in real net wealth tended to lower the saving rate by reducing the incentive to save.

The analysis indicates that lower real net wealth, following the surge in inflation and higher real interest rates from monetary policy tightening, also contributed to the saving rate's rise between mid-2022 and mid-2024.

The normalisation of consumption post-pandemic also played a role.