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News : International Last Updated: May 5, 2009 - 5:51:57 AM


US personal savings rate rises to 4.2% in March from below zero in 2005; Eurozone rises to 15%; Irish rate jumps from 3% in 2007 to 10% in 2009
By Michael Hennigan, Founder and Editor of Finfacts
May 1, 2009 - 7:14:30 AM

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The US personal savings rate - - saving as a percentage of disposable income - -rose to 4.2% in March according to the US Bureau of Economic Analysis on Thursday. Eurostat on Thursday reported that in the fourth quarter of 2008, the seasonally adjusted gross saving rate of households was 12.2% in the EU27, compared with 10.8% in the third quarter of 2008. In the Eurozone (EA15), the household saving rate was 15.1% in the fourth quarter of 2008, compared with 14.1% in the previous quarter. The Irish rate is estimated at 10% in 2009, up from 3% in 2007.

National Irish Bank said this week, that 2009 has seen Irish private savings rise to remarkable levels - estimated to be 10% of disposable income - up from a low of 3% in 2007.

The level of Irish personal debt has reached record levels due to the huge mortgages taken out during the property boom.

Irish people owe €170bn to banks and other institutions, with mortgage lending accounting for around €150bn of this.

Central Bank head of statistics John Kelly said on Wednesday, that personal debt had risen much faster here due to the level of mortgage borrowing.

"The proportion of personal debt which is secured on property now exceeds that of almost all other Eurozone countries," he said.

In 2004, the level of personal debt here was just under €80bn. But it has since more than doubled to over €170bn.

Low US savings and high credit demand has fuelled exports from Asia over the past decade.

Stephen Roach, head of Morgan Stanley Asia, said last year that the global economy is facing a multi-year rebalancing.

For the US, this spells a sustained deceleration in personal consumption growth as households abandon new found asset-dependent saving and consumption strategies in favour of the income-led fundamentals of the past.

"The US, in my view, will now have to come to grips with a much slower growth trajectory – with real GDP growth likely to slow from the 3.2% trend of the past 13 years to no higher than 2% over the next 2-3 years, or longer," Roach says.

"This should prove to be a very challenging outcome for the rest of the world – especially for those developing nations, which have derived so much of their economic sustenance from exporting goods to over-extended American consumers," he adds.

Roach said that over the past two decades, America has had an audacious shift from income- to asset-based saving. The US consumer led the charge, with trend growth in real consumer demand hitting 3.5% per annum in real terms over the 14-year interval, 1994 to 2007 – the greatest buying binge over such a protracted period for any economy in modern history. Real disposable personal income growth averaged just 3.2% over the same period.

The binge was financed through equity release loans on homes and consumption rose to a record 72% of real GDP in 2007.

Americans’ personal savings rate dipped into negative territory in 2005, something that hadn’t happened since the Great Depression.

The savings rate has been negative for an entire year only twice before — in 1932 and 1933 — two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs.

The US rate was 8.4% in 1952; 9.4% in 1970; about an average of 10% in 70's and 80's and 1.8% at the end of 2008.

The EU's statistics office Eurostat said on Thursday, that in the fourth quarter of 2008, the seasonally adjusted

gross saving rateof households was 12.2% in the EU27, compared with 10.8% in the third quarter of 2008. In the Eurozone(EA15), the household saving rate was 15.1% in the fourth quarter of 2008, compared with 14.1% in the previous quarter.

US personal income fell in March

Eurostat Houshold Savings Report

US Bureau of Economic Analysis -- data back to 1952; the Fed's saving's rate in its flow of funds report uses net worth as the denominator.

US Economic Conundrum: American consumers not spending enough; Spending too much

Irish National Bank says accumulated wealth of average Irish household has declined by €153,000 over last two years; Average household debt rises to €133,000 in 2008

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