Households directed a large part of their disposable income into saving rather than consumption last year

The extensive measures on the labour market taken by the government in response to the Covid-19 epidemic helped to maintain household purchasing power, and enabled further growth in the disposable income of Slovenian households. Because of the containment measures, this mainly did not translate into private consumption, but into increased household saving. Household deposits at banks thus increased to a record EUR 23 billion. Banka Slovenije’s assessment is that as the epidemiological picture improves and the containment measures are consequently relaxed, household disposable income will be directed more into private consumption.

Thanks to the extensive government support measures on the labour market (e.g. bonuses for working during the epidemic, the furlough scheme, the short-time work scheme, monthly basic income for the self-employed, farmers and religious functionaries) and in the area of social transfers (the solidarity bonus for pensioners, students and other vulnerable population groups), and also higher pensions, gross household disposable income increased last year. It amounted to EUR 1.1 billion, up 3.8% on 2019.

Despite the increased financial assets at the disposal of households, there was a sharp decline in private consumption in Slovenia last year, and the same developments were seen in all other euro area countries. The main reason was the containment measures necessary to curb the spread of the virus, but the public’s precautionary behaviour also played a part. During the spring and autumn lockdowns in Slovenia, many services and shops with non-essential goods had their operations curtailed at least in part. Much consumer spending was thus rendered impossible. Households consequently spent approximately EUR 2.6 billion less last year than in the previous year.

Banka Slovenije finds that households largely directed their income into saving. The saving rate stood at 25%, up 11.7 percentage points on 2019. The main factor in the rise in the household saving rate last year was forced saving, as a result of the inability to spend during the epidemic. The huge uncertainty also drove precautionary saving, particularly in the spring, at the outbreak of the epidemic.

Among the individual forms of saving available, a significant part went into bank (sight) deposits. The increase in household saving was reflected on bank balance sheets in an increase in household deposits, which rose by more than EUR 2 billion last year to currently stand at their record high (more than EUR 23 billion).

Given the increase in disposable income, which is flowing strongly into increased saving, and also the decline in private consumption, last year saw a decline in demand for consumer loans (these developments were seen in numerous other euro area countries alongside Slovenia). The total stock of consumer loans at banks and savings banks in Slovenia consequently declined by EUR 218 million in 2020. The contribution to private consumption from the decline in consumer lending was therefore small.

Banka Slovenije’s assessment is that as the epidemiological picture improves, household disposable income will be directed more into private consumption. This will again become a major driver of economic activity in Slovenia, and in other euro area countries.

Figure: Last year’s sharp increase in household saving amid the sharp decline in consumption

Sources: ECB, Banka Slovenije calculations