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The Estonian Economy No. 6, November 3, 2011

03-11-2011 16:08

High uncertainty induces savings and jeopardizes consumption recovery

  • Estonia experienced by far the highest spending and saving volatility in the EU during the boom and consequent crisis. The households’ saving rate dropped to -6.3% in 2006 and then climbed to +11.6% in 2009.
  • Consumption loans were not enough to cover the excess of consumption over income during 2003-2006, so households had to liquidate their assets – for instance, to sell real estate to other sectors (foreigners and the enterprise sector) and to use mortgages for consumption purposes. Since the beginning of 2009, households have been reducing their loan stock to improve their net financial position.
  • The saving and consumption behaviour of households is likely to be more stable in the future. Deleveraging will continue for some time, but the saving rate will probably come down slowly from its 2009 peak, if no new negative shocks are experienced. A new consumption boom with negative saving rates is very unlikely for the next several years.


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