Expert Commentary

Europe's Bank Deposits Another Sign of Deflation

Europeans have run to the bank to deposit cash. They might be running back again soon.

Bloomberg reports that: “Household (bank) deposits in the euro area’s four largest economies jumped more than 100 billion euros ($114 billion) in March and April, three times as much as the average pace of growth over the past decade.

Savings have increased during the lockdown periods and there’s no doubt that a lot of that dynamic is due to the fact that money couldn’t be spent even if people had wanted to. However, this most recent downturn in the 20-year negative trend in European social mood has been characterized by vastly increased uncertainty over health and jobs. It may be unlikely, therefore, that the freshly built-up savings pot will be raided in coming months because people want to go out and splurge. The increased saving rate is a sure sign of deflationary psychology. As the chief economist at a top investment firm put it: “I’m actually quite worried here.”

More likely is that Europeans will be running back to their banks, not to withdraw their cash to spend, but to instead stash it under the mattress as the financial viability of many institutions comes into question.

Banks Sector STOXX Europe 600