Spanish household income will increase around 4% between 2019 and 2021

CaixaBank Research | The Spanish economy has spent four consecutive years growing above the Eurozone average. At the same time, the savings rate has fallen to historic lows. Although this would seem to suggest that households have limited room to manoeuvre in their consumption decisions if the economic context worsens, in this article we see that it is still too soon to draw this conclusion.

It is likely that the savings rate will begin to recover slightly in the next three quarters and, in addition, households´ financial situation has improved significantly compared to the years before the crisis.
W forecast that household incomes will continue to recover over the next few years and will grow around 4% between 2019 and 2021.

The savings rate can be expected to recover gradually although, if incomes grow less than forecast, as in the pessimistic scenario, savings could still fall slightly before beginning to recover.

What risks would a fall in the savings rate entail? To analyse this question, we should evaluate the financial situation of households: their sources of income and the uses they make of it. Households present a healthier financial balance than before the economic crisis. Thus, if in 2007 12% of total household income came from new credit, in the four quarters up to Q318 this figure was only 1%.

Households have been reducing their debt almost without interruption since 2011. This dynamic has allowed household debt as a percentage of gross disposable income (GDI), accumulated over four quarters, to fall to 98.1% in Q3, well below the maximum of 134.4% reached in 2010. Moreover, in terms of uses, we see that households destine the majority of income to consumption, although they also dedicate part to accumulating financial assets and to finance investment plans (mainly housing investment). It should be stressed, however, that the importance of investment has also fallen significantly, from 15% of GDI in 2007 to around 6% in Q3 2018 (accumulated over four quarters). In short, while in 2007 households saved little but maintained a high level of consumption and indebted themselves to financing housing investment, currently this pattern has been truncated and we see how the low savings rate is not being translated into greater debt.