The French continue to save, not spend

Despite lower interest rates, savings accounts remain one of the favourite French financial products.

Against what most would seem as common sense, the French continue to save. Interest rates might be at historic lows and the economic downturn favours a position of investment, but the French savings rates have nonetheless increased to 15.9% of disposable income in Q1 2014, according to latest figures from the Bank of France, compared to only 14.7% in the same period a year ago.

French income is expected to rise further this year than in 2013, as taxes are increasing less rapidly and wages remain relatively dynamic. Consumption will be stimulated but not up to rising incomes, says an analyst at INSEE (the French ONS).

As always, the French like to keep things tight and do not spend on their additional income, which automatically leads to an increase in the savings rate. This figure represents a jump but is unlikely to stay at this level throughout the year.

Penalised growth

Further evidence of the reluctance of French is that liquid financial products are favoured. Lifestyle is still in the mindset of investors, but savings and long term deposits are their favourite investments. They are turning away from long-term investments, better paid but also riskier, and the Stock Exchange, which is too unstable to gain their trust.

The international comparison shows that a high savings rate is a drag on national growth. Germany, with the savings rate has exceeded 16% in the first quarter, saw its growth stay in the red. Instead, the United States showed last year a savings rate of only 4.5% … which promoted a rebound in growth in the spring because there was more consumer spending.

By anticipating further house price falls, and therefore being less willing to invest or spend, the French are in some ways creating pose their own problems and putting the country at risk of deflation, hampering a return to growth.