As a result of this confinement, consumption opportunities have diminished. As a result, French households have been saving heavily, mainly in Livret A passbook savings accounts and Livret de développement durable et solidaire (LDDS) passbook savings accounts. What are the consequences for the country's economy? How will this cautious trend evolve?
Record savings in April
In March, the Livret A had already recorded record inflows of 2.71 billion euros. The lock-in period, which began on March 17, is of course no stranger to this phenomenon. In April, the first full month of confinement, the savings rate exploded, with Livret A deposits reaching almost 5.5 billion euros. If we include the LDDS, inflows reached 7.39 billion euros in April alone, a monthly record since January 2013, a record that was explained at the time by the raising of the savings passbook ceiling.
At this stage of the year, the Livret A and LDDS have already exceeded total inflows for 2019, with total outstandings of 428.2 billion euros at April 30.
Generally speaking, deposits in the eurozone increased threefold in March, reaching 20 billion euros, compared with 6 billion during the same period in 2019. The phenomenon is therefore not specific to France, and can be observed in several eurozone countries, such as Spain and Italy, with the exception of Germany, which saw a €10 billion outflow of deposits in March.
By contrast, life insurance investments fell sharply, with an outflow of 2.2 billion euros.
How can we explain this phenomenon?
First of all, confinement has concretely and materially reduced consumption possibilities. While online shopping has partly replaced in-store purchases, delivery difficulties and the fear of contact have considerably reduced spending.
Secondly, uncertainty and the emerging economic crisis have led households to be cautious. Fear of tomorrow, of massive unemployment, of debt to pay off: these are hardly good times for spending.
In addition, the instability of the financial markets explains the outflow of funds from life insurance products. As part of the sums deposited in life insurance policies are invested in equities, the French have preferred to turn to safe, albeit low-interest savings such as the Livret A passbook savings account.
In an interview with Les Echos newspaper, Philippe Crevel, director of the Cercle de l'Épargne, points out that containment and the coronavirus crisis alone do not explain this savings trend: "We are certainly in an atypical, exceptional moment. But a number of structural factors, such as the aging of the population and the increase in job insecurity, are prompting the French to hold on to more cash than ever before.
When asked about the benefits of taxing savings, he claims that it would be "counter-productive", leading households to keep their savings in their current accounts or simply at home, in cash.
Will the French continue to save?
As consumption is one of the pillars of growth, politicians would like the French to save less. The political challenge of decontamination is to strike a delicate balance between health precautions and economic recovery, notably through tourism in July and August.
Éric Lombard, CEO of the Caisse des Dépôts et Consignations (CDC), considers these savings to be excessive. As for Bruno Le Maire, the French Minister of the Economy, he declared in April before the National Assembly's Finance Committee: "It's not savings that we need today for our economy, but investment."
However, the reduction in savings and the recovery in consumption are likely to be very gradual in the face of a more than uncertain future. The summer vacations will be the first indicator of the trend over the coming months, and will show whether or not French households are ready to move away from the current principle of prudence.