Private consumption and savings during the COVID-19 pandemic in Austria

The economic disruptions caused by the COVID-19 pandemic have driven up household savings in Austria to unprecedented levels. We quantify the excess household savings accumulated so far during the pandemic (Q1 20 to Q2 21) at EUR 10.8 billion relative to a counterfactual scenario without the pandemic. In this paper, we perform three decompositions of Austrian households’ excess savings. The decomposition by source reveals that a drop in the consumption of services fueled savings despite a strong fall in property income. The decomposition by allocation shows that in 2020 excess savings were mainly used to accumulate currency and deposits. This development reversed in the first half of 2021. The decomposition by saving motives employs econometric models for the savings ratio. It shows that traditional determinants behind saving motives cannot explain the observed sharp increase in savings. We therefore conclude that in the observation period, savings were driven by forced savings. These forced savings come to between EUR 17 billion and EUR 23 billion, depending on the model specification used. Based on our results and a literature survey, we expect that households’ marginal propensity to save out of current income will quickly return to pre-crisis levels but that the scope for satisfying pent-up demand out of accumulated excess savings will remain limited.