Brussels (Brussels Morning Newspaper) – Euro zone households continued to grow their savings in the second quarter, contrary to expectations that such high savings rates would decline and boost private consumption to support growth amid export challenges, according to Eurostat data, Reuters reported.
In 2024, the euro area household saving rate was relatively stable, generally around 15.2% to 15.3%. Specifically, in the fourth quarter of 2024, the rate was 15.2%, and according to Eurostat data, it was revised upward to 15.3% in the third quarter of 2024, remaining unchanged in the fourth quarter.
Why are euro zone households still saving more than expected?
Eurostat reported that the household savings rate increased to 15.4% in the second quarter, up from 15.2% three months earlier, remaining significantly above the 12% to 13% range typical of pre-pandemic years.
Households have increased their savings, rebuilding wealth lost during the post-pandemic inflation surge and creating buffers due to ongoing negative news about tariffs, weak competitiveness, and sluggish growth. The data shows that the households’ investment rate, previously declining, has now stabilized at 9% in the past year.
Could high savings rates slow the euro zone economic recovery?
Economists have expected a reversal for some time, as real wages have mostly recovered following the inflation surge, and unemployment remains near historic lows. The ECB predicted a decrease to 14.7% this year, with additional declines expected in the coming years.
The increase in the savings rate contrasts with the U.S., where it has largely declined throughout the year and fell below 5% in August.
Economists expect household spending to support growth in the second half, as net exports are likely to decline. However, August retail trade grew only 1.0% year over year, indicating that households continue to be cautious.
Why is the profit share of euro zone firms falling?
Eurostat reported that the profit share of euro zone companies kept decreasing this quarter, highlighting a persistent downward trend since early 2023. This suggests declining profitability as wages grow faster than value added, potentially signaling a worrying sign for growth.
For instance, in 2023, the profit share in the euro area was around 40.7%, slightly lower than before, and this softness has continued into 2025. In Q1 2025, the profit share was reported at approximately 38.8%, reflecting increasing wage growth that outpaced the growth in business value added, which signals potential challenges for overall economic growth and corporate profitability in the euro zone.
