The problem of Greek households' negative savings—despite the increase in disposable income in the nine months to 2024—is addressed in the latest issue of Eurobank's "7 Days Economy" analysis.
Specifically, as the analysis shows, in the period January-September 2024, there was an increase in private household consumption, which is mainly linked to the rise in wages. However, the strengthening of disposable income was not reflected in the savings component, as this remained negative.
'Negative household savings deprive households of resources to finance investment domestically, leading the economy to resort partly to external borrowing,' the analysis notes.
More specifically, as Eurobank analysts note, "private consumption in Greece maintained its momentum in 9M Jan-Sep-24, recording an annual real growth of 2.0% or 5.6% at current prices. One of the main explanatory factors for this result was the strengthening of household disposable income. It turns out that compensation of employees per person employed made the largest contribution to the increase in household disposable income, an increase that was, however, channeled exclusively into consumption, resulting in the household saving rate remaining in negative territory.
According to the non-financial accounts of institutional sectors published by the Hellenic Statistical Authority (ELSTAT), the gross disposable income of households, i.e., income allocated to consumption and savings, showed an annual nominal increase of 5.6% in 9M Jan-Sep-24. In real terms, i.e., in purchasing power units, the increase was milder at 2.5%, as the general price level moved up by 3.0% in the same period.
Which components of resources and uses that form the disposable income of households accounted for this increase? From dependent labor income? From the income of the self-employed? From property income? Or from transfer payments from the state? The highest contribution came from dependent labor income, registering a strong 8.9% increase and adding 4.3 percentage points to the increase in household disposable income. This was followed by gross income and net property income with a much smaller contribution. The increase in dependent labor income mainly reflected a 7.7% increase in compensation per employee, as employment other than self-employment moved up by 1.0%. Therefore, based on the above data, rising wages made the largest contribution to the strengthening of household disposable income in 9M Jan-Sep-24.
Nevertheless, the increase in household disposable income was channeled into consumption rather than savings. In detail, household disposable income strengthened to EUR 119.4 billion in 9M Jan-Sep-24, from EUR 113.1 billion in 9M Jan-Sep-23, and consumption increased to EUR 122.1 billion, from EUR 115.6 billion. As a result, savings remained in negative territory, -2.6 billion euros, or -2.2% of disposable income, down from -2.5 billion euros, or -2.2% of disposable income, in the corresponding period of 2023.
In conclusion, household disposable income in Greece moved upwards in 9M Jan-Sep-24, rising by 5.6% year-on-year in nominal terms and by 2.5% in real terms. Compensation of employees per employee made the highest contribution to this result. In addition, compared to pre-pandemic levels, i.e., 9M Jan-Sep-19, real disposable household income was boosted by 9.5%, with property income and self-employment income showing the largest contribution. The household savings rate remained in negative territory and remained at the same level as in 9M Jan-Sep-23 (-2.2% of disposable income). The negative savings of the institutional household sector in Greece have been a structural problem of the economy for many years. The exception is the pandemic period, but then the positive savings flow was more involuntary savings due to lockdowns than voluntary savings. Negative household savings deprive households of resources to finance investment domestically, leading the economy to resort partly to external borrowing.
