Portuguese savings are “among the most vulnerable” to inflation in the eurozone, threatening national savers with a “significant loss” in the purchasing power of funds accumulated over the past two years, according to a study published on Tuesday.
“In addition to registering a savings rate well below the European average, the Portuguese have deposited about two-thirds of the money they have set aside during the two years of the pandemic, thus risking a significant loss in the purchasing power of the savings accumulated over the past few years. two years,” warns Corum Investments Portugal / BA&N Research Unit in the study Portugal – Savings and Inflation in a European Context.
Because high inflation is “one of the main enemies of savings,” the paper warns that “Portuguese savers in the eurozone are among the most vulnerable to price spikes.”
As he recalls, “Portuguese conservatism is not only evident during the pandemic, as bank deposits also represent a large share of the total financial assets of the Portuguese, who use a small share of retirement savings.”
In the context of the annual growth of the Harmonized Consumer Price Index (HICP) by 8.1% in May 2022, the highest since 1993, the study notes that “the 173 billion euros that the Portuguese had in deposits at the end of 2021 show negative real returns in at a rate of 7.9%.
“After many years with ECB interest rates [Banco Central Europeu] at historic lows, commercial banks are unlikely to raise deposit interest rates to levels that offset inflation in the near future,” he says, predicting that “it will take time for inflation to fall to the ECB’s 2% target, and not be so soon, that the interest rate on deposits will reach this level, so the medium-term prospects for returns on deposits are rather bleak.”
According to a note from the BA&N Research Department, “The Portuguese have not even been hit the hardest by rising inflation, which is now in line with the eurozone average, but they are the most exposed to a loss in the value of their assets.” savings, mainly due to the conservative nature of their investments, the lack of lower-risk alternatives, and higher-than-average taxes on capital and labor.”
Recalling that “the loss of popularity of public savings products has been evident since 2018 due to the sharp fall in remuneration for these products in line with the strong decline in the cost of public funding due to the intervention of the ECB in the public debt market,” the study argues that “this evolution is also shows how the Portuguese State plays no role in encouraging the savings of Portuguese families, stimulating this market only when it requires funding from private individuals.”
“A strategy that supports ultimately nudges investors with a conservative risk profile into deposits.”
The analysis also shows that, based on 2021 values, the weight of deposits in Portugal (67%) is more than double the eurozone average (31.1%): “For every three euros saved, the Portuguese leave two euros in the bank, while on average in the euro area only one euro was spent on deposits, ”he notes.
In fact, in the euro area (2020 data) there are only three countries with a deposit weight higher than that registered in Portugal: Luxembourg (83.6%), Lithuania (75.4%) and Greece (307.7%). This southern European country is skewed by a very low savings rate (2.6% of disposable income).
“At the end of 2021, every Portuguese had $81,314 in financial assets, placing the country at the bottom of the table when considering the 17 eurozone countries,” the study says.
It is noted that “the lack of alternatives on the market to capture household savings, as well as the low level of financial literacy of the Portuguese” help to “explain the preferential deposit option.”
“But taxation also contributes to a lack of investment culture on the part of people in higher-risk assets,” the work adds, noting that “the implicit capital rate in Portugal is the third highest in the eurozone.”
The high tax burden on wages is another factor limiting Portuguese savings: “Taxes and social security contributions take up an appropriate share of wages, leaving a smaller margin for families to be able to save money after the day’s pay. today’s expenses,” he explains.
Evidence of this, he continues, is recent OECD data, which “shows that the tax burden on income from work in Portugal reached 41.8% in 2021, which puts the country at the top of the eurozone table (8th) and well above the OECD average of 34.6%.”
In addition to this fact, “Furthermore, Portugal is in a clear reverse cycle of the evolution of the tax burden, indicating that this is a chronic problem with a tendency to get worse.”
“The combination of high taxes on labor and capital in Portugal, with a lack of perception of attractive alternatives in the Portuguese financial market, and a reduced appetite of the Portuguese for higher risk investments, contributes to the continuation of the Portuguese tendency to choose deposits. apply savings even if rates of return are expected to be negative for an extended period,” the study concludes.
Author: Lusa
Source: CM Jornal
