Significant amounts of savings were accumulated by households and businesses during the pandemic period as uncertainty about the evolution of the pandemic led consumers and entrepreneurs to reduce their spending and investment activities. The Cypriot economy is one of the countries of the Eurozone which has always had low or negative savings rates. However, the Covid pandemic brought a positive element among so many other negatives. As a result of the restrictive measures led to increased savings of households and businesses.
The above conclusion is demonstrated by the data of the Central Bank of Cyprus since from July 2020 to July 2021 the total household savings had ranged from 28.5 billion euros to 29.5 billion euros, an annual an increase of one billion euros. In addition, the total deposits for IDPs at the end of July 2021 amounted to 40.5 billion euros. The same trend was presented in terms of increases in corporate savings, which increased from 10.6 billion euros to 11.3 billion euros. An increase in savings of up to 700 million euros.
At the same time, it is worth noting that the total loans of Cypriot households at the end of July 2020 amounted to 13.3 billion euros while at the end of July 2021 the total loans have decreased to 12.2 billion euros, an annual decrease of more than one billion euro. Essentially, the excess liquidity of households (deposits minus loans) amounts to 17.3 billion euros.
In relation to loans to businesses, they moved in the same downward pattern since from 15.5 billion euros in July 2020, they reached at the end of July 2021 to 14.9 billion euros.
Reasons for saving
“The increase in savings is mainly due to the uncertainty caused by the pandemic, either because households and businesses have saved for precautionary reasons or because they can not spend (at least to the extent they used to) due to restrictive measures. This increase is also due to the fact that the abundance of loans was in a period of suspension. Increasing savings will be the fuel for restarting the economy. With the lifting of the measures, we see that the economy is indeed showing a strong recovery. “In the coming quarters, economic activity is expected to strengthen given the improvement of epidemiological conditions,” the chief economist of the Hellenic Bank, Dr. Andreas Assiotis, told “P”.
“Based on domestic deposit statistics released by the Central Bank, what is really happening is a return to pre-pandemic trends, and perhaps a first indication of a looming change in consumer and savings attitudes,” he said. of households in the near future. Following the financial and banking crisis and in particular the period 2015-19, domestic savings increased significantly mainly due to the savings of non-financial companies whose deposits in the banking system had fallen sharply in the previous banking crisis. This happened in an environment of intense economic activity. In 2020, households increased their deposits amid financial uncertainty, restrictive measures and financial support from the state, while corporate deposits remained unchanged. In the seven months of 2021 until July, total domestic deposits increased by 2%, of which 3.5% of companies and 2.1% of households. We return to the pre-pandemic trend with an apparent appeal of households increasing their savings in the form of deposits. And this has a specific interpretation. The economic environment encompasses an increased degree of uncertainty, due to the challenges of climate change and digitization, and the resulting changes in economic balances. Economic uncertainty is more acute in the labor market, where the abolition of support measures in force during the pandemic, as well as business trends in digitalization are changing some data. These data will affect the consumer and savings behaviors of households “, notes the Director of Financial Research of the Bank of Cyprus, Giannis Tirkidis.
The development momentum will continue provided there is no setback in relation to the pandemic crisis. According to the Ministry of Finance, the growth rate of the economy in the second quarter of 2021 is positive and is estimated at 12.8% compared to the corresponding quarter of 2020. After the correction of GDP in terms of seasonal fluctuations and working days, the growth rate is estimated at 12.9%. The positive growth rate of GDP is due, among other things, to the sectors of tourism, construction and retail. Unlocking the economy leads to an increase in economic activity and contributes positively to the growth of employment and therefore to the increase of income and savings. The accumulated savings with the simultaneous lifting of the measures are expected to further increase the expenses of the households, but also the investments on the part of the enterprises.
Areas of recovery
Long-term sectors of the economy that contribute to the growth of overall economic activity, such as real estate and similar subsectors have gained momentum. This also results from the data of the Land Registry Department which show that at the end of August 2021 the sales documents showed an annual increase of 42%. This fact was confirmed to “P” by banking sources who stressed that both mortgages and car loans are on the rise. In particular, with regard to the car market, a source with very good knowledge of the subject stated that in recent months there has been a significant increase in demand for the car market as households want to channel their excess liquidity into vehicle markets.
The same applies to life insurance premiums which based on the latest statistics of the Association of Insurance Companies of Cyprus showed an overall annual increase at the end of the first quarter of 2021 of 5.1%. Another factor that may be due to the increase in household savings is the fact that premiums for individual life insurance policies also followed an annual increase of 10.8%.