The Future of Irish Household Deposits: A European Perspective

During 2020 and 2021, Irish household deposit growth accelerated to more than three times the pre-pandemic average resulting in “excess” deposits of around €16 billion. Consequently, Ireland was amongst the top euro area countries for pandemic deposit growth. In addition to the consumption-curbing effect of the virus and public health restrictions, relatively higher real income growth appears to explain the Irish figures. This Letter presents an analytical framework to support future deposit scenarios for policy makers. Beyond the pandemic, the erosion of real income by current higher living costs could reduce the existing deposit stock and curtail further savings capacity. Economic uncertainty is, however, also high at present and a marked deterioration in households’ forecasts of unemployment or economic growth could lead to precautionary savings among those who can afford it. The net effect of liquidity needs versus precautionary motives will likely determine future deposit growth. Over the longer term, an increasing old-age dependency ratio in Ireland could reduce the population’s capacity to save requiring future planning.