The savings of the Portuguese is “one of the most vulnerable” to inflation in the euro zone

The savings of the Portuguese is “one of the most vulnerable” to inflation in the euro zone, national savers risking “a considerable loss” of purchasing power with the funds accumulated in the last two years, according to a study released this Tuesday .

In addition to registering a savings rate well below the European average, the Portuguese invested around two-thirds of the money they set aside in the two years of the pandemic in deposits, thus risking a considerable loss of purchasing power with the savings accumulated in the last two years”, warns Corum Investments Portugal/ BA&N Research Unit in the study ‘Portugal – Savings and Inflation in the European context’.

As high inflation is “one of the main enemies of savings”, the work warns that “Portuguese savers, in the eurozone, are among the most vulnerable to the sharp rise in prices”.

As he recalls, “the conservatism of the Portuguese is not exclusive to times of pandemic, since bank deposits also represent a high part of the total financial assets of the Portuguese, who are applying a small part of their savings for retirement. ”.

In a context of an 8.1% year-on-year rise in the Harmonized Index of Consumer Prices (IPCA) in May 2022, the highest since 1993, the study indicates that “the 173,000 million euros that the Portuguese had in deposits at the end of 2021 show a negative real return of 7.9%”.

After many years with ECB interest rates [Banco Central Europeu] at record lows, commercial banks are unlikely to raise interest rates on deposits to levels that offset inflation in the near future,” he says, forecasting that “it will take time for inflation to fall to the ECB’s 2% target and it will not”. It will be so soon that the interest rate on deposits reaches this level, so the medium-term outlook for the return on deposits is quite bleak.”

According to the BA&N Research Unit, “the Portuguese are not even being the most penalized with the escalation of inflationwhich is now in line with the eurozone average, but they are among the most exposed to the loss of value of their savings, mainly due to the conservatism of their investments, the lack of alternatives with reduced risk and also a higher tax level than the average. on capital and labour.

Recalling that “the loss of popularity of State savings products has been noticeable since 2018, due to the sharp drop in the remuneration of these products, in line with the sharp reduction in the costs of State financing due to the ECB’s intervention in the public debt market”, the study maintains that “this evolution also denotes how the Portuguese State does not play a role in promoting the saving of Portuguese familieshaving boosted this market only when it needed financing from individuals”.

The analysis carried out also shows that, with data from 2021, the weight of deposits in Portugal (67%) is more than double the average of the eurozone countries (31.1%): “For every three euros saved, the Portuguese left two euros in the bank, while in the euro zone, on average, only one euro went to deposits”, he points out.

In fact, in the euro zone (2020 data), only three countries appear with a weight of deposits higher than that registered in Portugal: Luxembourg (83.6%), Lithuania (75.4%) and Greece (307.7 %). of this southern European country are distorted by a very low savings rate (2.6% of disposable income).

“At the end of 2021, each Portuguese had 81,314 dollars in financial assets, a value that places the country at the bottom of the table considering 17 countries in the euro zone,” the study reads.

It is pointed out that the “lack of alternatives in the market to capture household savings, as well as the low level of financial education of the Portuguese” help “to explain the preferential option for deposits”.

“But taxation also contributes to the lack of investment culture on the part of individuals in higher-risk assets,” adds the work, noting that “the implied rate on capital in Portugal is the third highest in the euro zone“.

The high tax burden on wages is another of the factors cited as limiting Portuguese savings: “Taxes and Social Security contributions take a significant part of wages, leaving a smaller margin for families to set aside money later to pay for the day. -Expenses of the day”, he explains.

Proof of this, he continues, are recent data from the OECD that “show that the tax burden on labor income in Portugal reached 41.8% in 2021, which places the country at the top of the table for the area euro (8th place). ) and well above the OECD average (34.6%)”.

In addition to this fact, “in addition, Portugal is in a clear countercycle in the evolution of fiscal pressure, which shows that it is a chronic problem with a tendency to worsen”.

The combination of high taxation on labor and capital in Portugal, with the lack of perception of attractive alternatives in the Portuguese financial market and the reduced appetite of the Portuguese for higher risk investments, favors the continuation of the trend of the Portuguese to choose deposits to apply savings, even if the rates of return are expected to be negative for a prolonged period”, the study concludes.