These savings are seen as a key factor in determining the pace of global economic growth during the coming period. A research note issued by Oxford Economics, a copy of which was shared with Al Arabiya.net, indicates that these excess savings represent the main risk of the growth model with potential It caused an unprecedented spending wave in the post-pandemic period.
“Our expectations indicate that consumers in advanced economies will spend about 5% of that savings, but if spending rises above that percentage, this will cause a record growth rate for the economy next year,” the research institute said in its memo.
“For Europe, this would be welcome to support the pace of economic growth, but in the United States, increased spending is a risk factor with expectations of a flurry of an already hot economy,” the memo added.
Regardless of consumer trends towards spending or wealth preservation, Oxford Economics forecasts that the savings of families around the world will contribute to supporting the pace of global economic growth by the middle of next year between 0.4% and 1.5%.
Advanced economies account for most of the jump in household wealth in the midst of the pandemic, with programs designed in these countries to increase savings in times of the pandemic in addition to trillions of dollars in stimulus packages that these countries have pumped to keep their economies alive.
And the United States was at the forefront of the countries in which household wealth rose in relation to GDP, as that percentage reached 12% of GDP, followed by Canada by 11.5%.
Spain came in third place with about 9% of GDP, followed by Japan with about 8%, then France with about 7% of GDP, and despite the consequences of Brexit, Britain came in eighth place, with household savings amounting to about 6.5% of GDP.
Economies at stake
And to emerging economies, the report of “Oxford Economics” believes that the effects of the increase in the pace of global spending will negatively affect many emerging economies, except for commodity-exporting countries, which will benefit from a surge in demand and high prices.
The research note said, “For emerging economies, the promotion of economic growth will be modest and tilted towards emerging economies in Latin America and some commodity-exporting countries (where higher demand from advanced economies causes an increase in prices).”
The memo added, “Despite the expected growth in global trade, which will benefit emerging markets, the tightening of global financial conditions will have a greater impact on the economies of these countries, as our expectations indicate that interest rates will be raised by the end of 2022 in most advanced economies, which will cause an increase in bond yields in the future.” This will be reflected in the tightening of financial conditions, in consequence, in emerging economies.
Differentiated effects of risks
The implications of the risk of generous consumer spending differ from one economy to another. The research note issued by “Oxford Economics” says, “The risks are clearly evident in the United States, where a mixture of strong private sector demand and generous government stimulus packages is expected to constitute a risk factor for the US Federal Reserve’s targets for core inflation.”
The research institution’s expectations indicate that inflation in the United States will remain much higher than the bank’s target by mid-2022 around 2.5% and remain around those high levels until mid-2023.
“This matter represents a major challenge to the Federal Reserve’s new policy of medium targeting of inflation. Returning inflation to the level of 2% requires steady target expectations, which will be difficult when inflation hovers above 2% levels,” the memo added.
The major central banks around the world, such as the Federal Reserve and the European Central Bank, usually target inflation rates around 2% to stimulate growth and avoid a slide into recession.
In times of high inflation, investors usually resort to investment assets that represent a buffer for them to hedge against the risks of high inflation, which could erode the value of their investment assets.
And to Europe, the research note believes that the implications of generous consumer spending will be different, as spending is expected to balance the risks of inflation and deflation.