Europeans are clinging to their savings. What does it mean for growth in the EU?

European households are saving at their highest rates in years, according to new data, with saving rates in the eurozone surpassing pre-pandemic levels.

In the second quarter of 2024, the saving rate in Europe was 15.7% — an increase from the 15.2% rate seen in the quarter prior, according to Eurostat, the statistical office of the European Union. The rate surpasses the roughly 12% seen in the years prior to the COVID-19 pandemic.

A high saving rate in a county or economic bloc often indicates a level of economic anxiety and uncertainty as low consumer confidence leads people to save rather than spend or invest. During the pandemic, for instance, the saving rate in Europe soared to a staggering 25.3%.

Following the COVID-19 pandemic, Europe has struggled to maintain strong economic growth rates compared to other regions.

As noted in the World Economic Forum’s latest Chief Economists Outlook, “numerous factors are contributing to the region’s sluggishness, and political uncertainty in numerous countries – not least in two of the region’s largest countries, Germany and France – makes it a particular challenge to formulate an effective and consistent response.”

Last quarter, the save rates in Germany and France were above the regional average, hitting 21.23% and 17.08%, respectively, according to Eurostat.

Germany, in particular, has been a drag on recent growth in Europe, the Forum’s report notes. In the second quarter of 2024, the German economy contracted by 0.1% quarter on quarter, marking the fourth contraction in the last two years.

Moreover, as to be expected when the saving rate increases, the household investment rate has continued to decrease in Europe.

This quarter, the investment rate fell to 9.2% — a decrease from the 9.3% seen in the quarter prior and from the recent high of 10.3% seen in 2022, according to Eurostat. Meanwhile, the level of gross disposable income increased by 0.8%.

Of the chief economists surveyed in the Forum’s survey, almost three-quarters said they expect only weak growth in Europe in 2024. “Europe is the regional laggard once again,” the report notes.

Nonetheless, respondents are modestly optimistic that conditions in Europe will improve next year, with almost twice as many (53%) expecting moderate or better growth in 2025 as in 2024 (29%).

In its latest economic forecast, the European Commission stated that gross domestic product growth in 2024 is projected to be 1% in the European Union. Growth is expected to improve to 1.6% in 2025.

“The EU economy has held steady in the face of exceptional challenges over the past years and we can now look forward to a return to modest growth rates, picking up further in 2025,” Valdis Dombrovskis, the Commission’s Executive Vice-President for an Economy that Works for People, said in a statement. “However, the global landscape remains fraught with risks for the EU, with rising and persistent geopolitical tensions.”

The Chief Economists Outlook also noted that geopolitical tensions are “another potential source of macroeconomic shocks” that continue to threaten economic growth.