After the double deficits… “double spaces”: Greece faces a serious problem not only with “investment gap” but also with the equivalent savings accountwhich is actually expanding, as can be seen in the first quarter data.
The “investment gap” is defined as the difference in the share of investment in GDP formation recorded in Greece compared to the EU average. And despite the efforts of recent years and the EU funds flowing into the country, the gap remains large, with Greece barely reaching 14%, while Europe is just over 20%.
On the savings front, the problem appears to be even more serious. While in the EU household savings appear to have stabilised in recent years at 12%-13% of disposable income, in Greece they are negative and, in fact, yesterday’s ELSTAT data show a “deep” negative rate of four times in the first quarter of 2024 compared to the first quarter of 2023.
Your official details Hellenic Statistical Authority (ELSTAT) calculate the household savings rate – i.e. the ratio between gross savings and gross disposable income -8.1% for the period January to March 2024. This is four times higher than the -2.2% recorded by ELSTAT in the first quarter of 2023.
At a slow pace
Gross income continues to grow at a much lower rate than gross expenditure, and this further aggravates the problem, as in practice disposable income is compressed and reduces the already narrow margin for savings, which in turn “hits” investments, at a time when their increase is in great demand. It turns out that in the “twin gaps” one strongly influences the other.
In the first quarter of 2024, disposable income in the household sector and non-profit institutions serving households (NPOs) increased by 1.1% compared to the same quarter of the previous year, rising from EUR 34.74 billion to EUR 35.13 billion.
Primary income
The gross balance of primary income recorded a larger percentage increase (4.8%), but both current income taxes and social contributions increased at much higher rates (6.5% for taxes and 10.2% for contributions), resulting in a significant reduction in the growth rate of gross disposable income.
In the same period, final consumption expenditure by households and non-profit institutions serving households increased by 6.9% compared to the corresponding quarter of the previous year, from EUR 35.5 billion to EUR 38.0 billion.
In absolute numbers, they had an increase of 2.5 billion euros in expenses and only 390 million euros in revenue.
Why is the phenomenon of negative savings continuing and intensifying? Recently, the Governor of the Bank of Greece, Giannis Stournaras, listed the main reasons that remain on the table:
Low (or negative) household savings were mainly due to:
- the high percentage of the black economy and tax evasion, which favours consumption rather than savings,
- in the insurance system, which, with the exception of the recent attempt to create a capitalisation pillar, the TEKA, remained for many years purely distributive and with a high replacement rate, which discouraged private savings,
- low interest rates on term deposits compared to the rest of Europe, which also discourage private savings, and
- in the absence of a culture or even incentives for private insurance of individuals’ assets against natural disasters, with the result that Greece has the largest corresponding insurance gap in the euro area.
The course of deposits
Data published yesterday by the Bank of Greece showed an increase in private sector deposits during the month of June by 3.83 billion euros compared to the previous month.
Particularly:
- Corporate deposits increased by 3,051 million euros in June, compared to an increase of 577 million euros in the previous month.
- Household deposits increased by 775 million euros, compared with a decrease of 274 million euros in the previous month.
It should be noted that the increase in deposits (even households) should in no way be confused with the change in savings, since the reasons that can affect the balance of bank deposits are completely different and the way in which the deposit amount is calculated is completely different savings for all Greek households.
The course of loans
There is also concern about the evolution of housing credit, since the negative signal for another month in turn affects real estate investments, which, despite the increase, remain at low levels compared to pre-crisis levels.
In June 2024, the annual rate of change in total private sector financing accelerated to 6.1%, compared with 4.8% in the previous month.
The monthly net flow of total financing to the private sector was positive at EUR 3,313 million, compared to a positive net flow of EUR 66 million in the previous month.
The monthly net flow of financing to companies was positive at 3,158 million euros (vs. 105 million euros in May) and the year-on-year rate of change rose to 10.3%, compared to 8.3% in the previous month.
The monthly net flow of financing to individuals was positive at 88 million euros, but in housing credit the financing balance amounted to 27,429 million euros, down 43 million euros, with the year-on-year variation at -2.9%.