The French want to consume, spend, and also save
Following the lockdowns, consumer habits are expected to shift toward greater restraint and a renewed focus on family life, housing, and local or national markets. Data from INSEE reveal that the increase in purchase intentions and spending in May has not been accompanied by a significant decline in savings intentions.
This apparent contradiction is confirmed by the BPCE L'Observatoire–Audirep survey. The decline in personal financial concerns and short-term economic uncertainties has not led to a relaxation in saving behavior: 89% of French people report putting money aside or trying to do so, and 43% feel they do not have sufficient emergency savings. In fact, beyond the slight decline in short-term fears, concerns about wealth, family solidarity, and life-cycle issues remain high (purchasing real estate, helping children or grandchildren, retirement, and passing on assets). Faced with rising fears of social decline and worsening expectations regarding future income for themselves or their children, the French remain cautious about saving, and there is no indication that the economic recovery will be fueled by the withdrawal of accumulated savings. The decline in the savings rate is expected to be gradual and limited, despite the improving economic environment.
A high household savings rate
The revised forecasts are now more optimistic, although they depend on when herd immunity is achieved. French growth could exceed 5.1% in 2021 and 3.9% in 2022, thanks to a combination of accommodative monetary policies on both sides of the Atlantic, exceptional fiscal stimulus packages, and efforts to preserve the productive sector and household incomes. This recovery would not offset the previous loss of wealth until the first half of 2022 and would not prevent unemployment from rising during the gradual transition away from the “whatever it takes” approach. Even if the public health situation returns to normal, it is unlikely that the savings rate will quickly return to its previous trend of 14.5%, as its recent rise is mainly due to affluent households whose propensity to consume is below average. Furthermore, the destabilizing effect of persistently extremely low nominal and real interest rates—which no longer reflect a legitimate preference for the present—could encourage households to maintain high levels of savings, particularly due to retirement-related concerns, in order to compensate for insufficient returns, especially if higher inflation is anticipated. The savings rate is therefore expected to remain high, standing at 19.8% in 2021 and 16.8% in 2022.
Record-high financial investments in 2020 are expected to decline gradually through 2022
Measured in terms of net investment inflows—defined as the excess of payments over redemptions for various financial assets (excluding interest payments and interest capitalization)— financial investments, which reached an all-time high of 133.3 billion euros in 2020, are expected to decline gradually to 113.6 billion euros in 2021 and then to 77 billion euros in 2022.
These consistently very high levels reflect the accumulation of persistent economic fears—both for oneself (rising unemployment and taxes, declining social safety nets, particularly pensions, etc.) and for the national economy in general. This gradual decline, resulting from the shift from forced savings to increased precautionary savings, would lead to investment decisions still guided by a wait-and-see attitude, a search for security and liquidity at the expense of risk, due to interest rates considered abnormally low. Flows into demand deposits would remain very positive (36.1 billion euros in 2022), as the prospect of spending the previous surplus is marginal but increasingly being considered with a view to later allocating those funds to an investment vehicle.
In 2022, we would thus see a continued shift of demand deposits toward savings accounts (34.5 billion euros) and life insurance (19.5 billion euros), a trend that was already evident in the first quarter of 2021. Life insurance is expected to continue the recovery that began in 2021, driven by lower outflows from euro-denominated products (–7.6 billion euros) and, above all, the strong performance of unit-linked policies (27.1 billion euros), which are also benefiting from the growth of new PERs, where the proportion of unit-linked components exceeds the average for all policies.
Generally speaking, growing concern about retirement and the success of the new PERs—whether for 2020 or based on intentions expressed for 2021–2022, in both individual and group plans—should support overall life insurance premium inflows. Equities, which were overall negative in 2022 (–5.5 billion euros), are expected to see a resurgence of risk aversion in 2022 as prices rise and the room for maneuver narrows for opportunistic strategies; however, inflows would remain positive for equities alone, with a significant expansion in the pool of active shareholders.
