(OTTAWA) Elevated household savings in Canada and the United States could help both countries avoid a severe downturn as high interest rates ripple through the economy, a new Bank of Canada report says. Montreal.
Indeed, even if the reserves accumulated during the pandemic have considerably decreased, many households still have above-average savings, underlines the document published on Friday.
Closures and confinements linked to the pandemic have enabled several households to achieve significant savings by limiting their spending in several sectors such as entertainment and public transport.
Many workers have also benefited from income support programs put in place by governments, which have bolstered their incomes.
Middle- and upper-income households hold most of the excess savings currently in the economy, noted Sal Guatieri, senior economist at Bank of Montreal and author of the report.
Meanwhile, low-income households have depleted most of their savings as inflation and high interest rates eat into more of their budgets.
“It’s not surprising, given, in the first place, that they have accumulated relatively lower savings than high-income households,” Guatieri said. They have (also) been more confronted with the rising cost of basic necessities. »
For the 40% of people with the lowest incomes, net savings decreased by 12% between the first quarter of 2020 and the third quarter of 2022. In contrast, it increased for the richest 40%.
While these excess savings by some households can serve as an economic cushion, Guatieri warns they could also become a “double-edged sword” for central banks battling high inflation.
The Bank of Canada and the US Federal Reserve have aggressively raised interest rates to curb spending in both economies and bring down inflation, which last year hit its highest levels in decades.
The report also notes that “the thinner cash cushion available to lower-income groups means they are more susceptible to a downturn in the economy.”