27 November 2013

ECFIN Country Focus - Is the traditional Austrian thriftiness under threat?

One of the thriftier EU countries saw its household saving rate decline abruptly in 2010-2011. Such a turnaround warrants examination, as a trend decline of the saving rate might be a cause for multiple concerns.

Summary

Over 2010-11, the gross household saving rate in Austria declined abruptly to an historical low of 12% of disposable income, despite a marked recovery of output and employment. Prior to that, in 2001-7, the saving rate had been rising steadily to stabilise at a high level of 16% in 2007-9. Such a turnaround warrants examination as a trend decline of the saving rate might be a cause for multiple concerns, e.g. with respect to the financial soundness of households or, in the long run, their capacity to supplement the financing sources of ageing-related expenses.

The main drivers of the recent decline in the saving rate are labour income and property income. The economic downturn of 2009 affected labour income through a pronounced decline in labour utilisation (hours worked per employee) and post-recession wage moderation. Consumer price inflation also imposed a drag on household labour income. A decline in property income exacerbated the impact on the saving rate. Property income has exhibited a strong correlation with the saving rate since the late 1990's and was a key driver of the increase in the latter prior to the crisis.

Fluctuations in private consumption have been relatively limited, pointing to consumption smoothing by households. Trend and actual consumption growth do not indicate any consumption exuberance in recent years. Between 2010 and 2012, aggregate household indebtedness did not exceed 90% of gross disposable income and hovered around 70% of cash and deposit holdings. Despite the decline in the household saving rate, Austria remains one of the thriftier nations in the EU. Real household incomes posted a recovery in 2012 on account of the resilient labour market and an increase in negotiated wages. Coupled with consumption restraint, this led to a mild rebound of the saving rate.

The Commission Autumn Forecast 2013 projects an improvement in the economic environment and positive growth rates in employment and real household income for Austria in 2013-15. This is expected to support a continuation of the gradual recovery of the saving rate. With strengthening corporate and household investment, Austria's external balance is expected to increase only moderately over the same period.

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