Tuesday , August 4 2020

European consumers get spending again with government support

Bloomberg

European consumers are heading back to shops and restaurants with their pockets full of cash because of government support through the coronavirus pandemic.
In the euro area, many people have more savings now than before the crisis hit, according to Bloomberg Economics. In the UK, where eateries reopened at the weekend, consumption may exceed expectations.
The upshot is that households are likely to drive the economic rebound in the second half, as long as the region can avoid a second wave of infections.
The outcome hangs on whether consumers will quickly return to earlier spending levels or keep hold of their savings as government programs expire.
The British government has absorbed more than half the income households would have lost in the second quarter, Bloomberg Economics calculates. At the same time, the lockdown meant the savings ratio jumped to 21% of disposable income compared with 8.1% in the first quarter, Bloomberg Economics’ Dan Hanson wrote in a report.
Euro-area furlough programs and out-of-work benefits mean governments there have pledged to plug 64% of the income gap, according to Maeva Cousin and Jamie Rush in a separate report on Monday.
Still, the broad picture masks underlying discrepancies, with jobs lost and government support failing to reach all parts of the economy.
In Italy, administrative delays mean the people that most needed support probably didn’t receive it until June. That could put a damper on consumption in the second half.
“Higher savings should mean bank balances increase while more loans get repaid,” Rush and Cousin said. “That’s exactly what we have found in Germany, France and Spain — but not everywhere.”

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