Europe saves and struggles in pandemic as Sweden keeps calm and carries on

Europe struggles and saves in pandemic as Sweden keeps calm and carries on

As the pandemic deepens and lockdowns spread, Europeans are saving more and growing increasingly pessimistic about the future, a Reuters analysis of data shows. Only one country bucks the trend: Sweden.

The virus has forced millions to turn to the state for support, widened the gap between rich and poor and exposed the vulnerability of countries whose economies are unable to easily switch into home-office mode.

A survey of European households — to measure their expectations for the economy and their own finances in the coming year — showed they have largely become despondent about the future, in particular in hard-hit countries such as Spain and Italy. Only Sweden has escaped this wave of pessimism.

Change since Jan 2020 in household expectations of the economy

25%

Sweden up 9% compared to January 2020, before the pandemic gripped Europe.

0

Ireland fell 47% in April 2020 amid stay-at-home coronavirus restrictions.

−25

Germany

EU

−50

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

2020

2021

Change since Jan 2020 in household expectations of the economy

25%

Sweden

0

Ireland

Germany

EU

−25

−50

Jan

Jan

2020

2021

Source: Gene Ambrocio, economist at the Bank of Finland

Swedes are more optimistic now than they were before the pandemic struck, having seen their expectations rise during the past year. However those in the wider European Union have seen their economic expectations tumble by more than a fifth, according to researchers who scored people’s sentiment and how it has changed over time.

“Sweden stands out,” said Gene Ambrocio, an economist with Finland’s central bank, who discovered the difference in his research.

Shuttered high streets are commonplace around Europe. But Swedes still eat out, shop and rarely wear masks. Chief epidemiologist Anders Tegnell, who set this course, has won cult status for keeping gyms and even saunas open.

Swedish workplaces also never shut down, a stark contrast to the pandemic experienced by other Europeans. Ireland, for example, endured the longest lockdown, closing all but essential workplaces for 163 days from the start of the pandemic to the middle of January, according to a Reuters analysis of the Oxford Coronavirus Government Response Tracker.

Ireland

163 days of workplaces closed

Italy

131

Netherlands

110

UK

104

Belgium

97

France

84

Lithuania

76

Austria

73

Switzerland

60

Luxembourg

56

Spain

53

Portugal

50

Estonia

45

Croatia

38

Czech Republic

37

Germany

34

Slovenia

31

Latvia

31

Slovakia

25

Denmark

15

Bulgaria

7

Sweden

0

Ireland

163 days of workplaces closed

Italy

131

Netherlands

110

UK

104

Belgium

97

France

84

Lithuania

76

Austria

73

Switzerland

60

Luxembourg

56

Spain

53

Portugal

50

Estonia

45

Croatia

38

Czech Rep.

37

Germany

34

Slovenia

31

Latvia

31

Slovakia

25

Denmark

15

Bulgaria

7

Sweden

0

Romania, Poland, Norway, Malta, Iceland, Hungary, Greece and Finland never closed workplaces.
Source: Oxford Coronavirus Government Response Tracker

Keeping the country open has kept Swedes’ spirits up, the study suggests. Ambrocio also believes the Swedish exception could be down to their faith in government and confidence in its liberal approach to dealing with the pandemic.

Rejecting lockdowns has also helped the Swedish economy, which has fared better than much of Europe.

Although there has been growing domestic criticism of the government’s approach, this has resulted in only mild restrictions, and no fundamental change of course. Sweden’s death rate, although several times higher than Nordic neighbours, has been lower than several European countries that opted for lockdowns. Recent infections in Sweden have, however, been worse than Ireland.

Ireland reached a peak of 8,227 new infections Jan 8 after increased socialising around Christmas.

Sweden saw cases surge in November, but maintained its strategy of voluntary measures and no lockdowns.

10k

10k

5k

5k

7-day average

Dec 31, 2019

Feb 16, 2021

Dec 31, 2019

Feb 16, 2021

Ireland reached a peak of 8,227 new infections Jan 8 after increased socialising around Christmas.

10k

5k

7-day average

Dec 31, 2019

Feb 16, 2021

Sweden saw cases surge in November, but maintained its strategy of voluntary measures and no lockdowns.

10k

5k

Dec 31, 2019

Feb 16, 2021

Sources: Department of Health, Ireland; Public Health Agency of Sweden

Ireland, by contrast, has taken a tough course from the outset of the pandemic.

In the run-up to Christmas, the government loosened the rules, opening pubs and allowing families to gather. The result, a dramatic spike in deaths weeks later, has been seized on by politicians as evidence that strict lockdowns are the only way to tackle the virus.

Sweden’s recent rates of infection have outstripped Ireland’s, but not as dramatically as expected. Pandemic deaths in Sweden, at more than 12,000, are worse than in Ireland, which is half its size and has suffered about 4,000 deaths.

Pessimistic Europeans hoard cash

An important yardstick of confidence throughout the past year has been the rate of savings — the more uncertainty over the future, the more people save. Savings also reflect shopping and travel bans.

At the peak of lockdowns last year, overall savings in the EU hit record levels. As lockdowns were loosened and optimism returned in the third quarter, the savings rate fell back but still stood a third higher than a year earlier.

EU savings rates soared to 23% in the 2nd quarter of 2020 after lockdowns across the continent.

25%

20

15

10

Household savings dropped 7 percentage points as lockdowns lifted and Europeans spent excess savings.

5

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

EU savings rates soared to 23% in the 2nd quarter of 2020 after lockdowns across the continent.

25%

20

15

10

Household savings dropped 7 percentage points as lockdowns lifted and Europeans spent excess savings.

5

2010

2015

2020

Note: Quarterly data seasonally and calendar adjusted data
Source: Eurostat

Again, Sweden reacted differently. While people in other countries such as Ireland, Belgium and Germany started hoarding more and more cash as the pandemic unfolded, Swedes kept saving at the same rate as usual.

Irish households had 125 billion euros in bank accounts at the end of last year, an increase of more than 14 billion euros from a year earlier. They also pared back borrowing. While the Irish and Germans were putting aside roughly 30% of their spare income towards the end of 2020, the Swedes never changed their habit of putting aside about a fifth.

Ireland savings rate soared to 35% in the 2nd quarter of 2020.

Germany households remained focused on reserves as the savings rate in the 3rd quarter dropped only 4.72 percentage points from 28% in the 2nd quarter.

Sweden saw little fluctuation in savings rates, which inched up to 20% in the 2nd and 3rd quarters.

40%

40%

40%

20

20

20

Other European countries

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

2019

2020

2019

2020

2019

2020

Ireland savings rate soared to 35% in the 2nd quarter of 2020.

Germany households remained focused on reserves as the savings rate in the 3rd quarter dropped only 4.72 percentage points from 28% in the 2nd quarter.

Sweden saw little fluctuation in savings rates, which inched up to 20% in the 2nd and 3rd quarters.

40%

40%

40%

20

20

20

Other European countries

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

2019

2020

2019

2020

2019

2020

Ireland savings rate soared to 35% in the 2nd quarter of 2020.

40%

20

Other European countries

4Q

1Q

2Q

3Q

2019

2020

Germany households remained focused on reserves as the savings rate in the 3rd quarter dropped only 4.72 percentage points from 28% in the 2nd quarter.

40%

20

4Q

1Q

2Q

3Q

2019

2020

Sweden saw little fluctuation in savings rates, which inched up to 20% in the 2nd and 3rd quarters.

40%

20

4Q

1Q

2Q

3Q

2019

2020

Note: Quarterly data seasonally and calendar adjusted data. Some data are preliminary
Source: Eurostat

The data outlines the importance of confidence in navigating an economic slump that is likely to worsen when governments’ multi-billion-euro guarantees and handouts are withdrawn.

Germany’s offering has been the most generous. It furloughed six million workers on its Kurzarbeit scheme — paying up to 4,600 euros a month — in April, and some two million were still on it towards the end of last year. The unprecedented government support has insulated Germans from the worst of the pandemic.

Sweden, one of Europe’s wealthiest countries, has also rolled out large state support schemes, helping to cushion the economic impact of the virus.

In April 2020, about a tenth of the German population applied for short-term work as part of the Kurzarbeit scheme.

8 million

6

4

In the 2009 recession, Germany utilised the Kurzabeit scheme and sent workers home in exchange for job guarantees.

2

2008

2010

2012

2014

2016

2018

2020

In April 2020, about a tenth of the German population applied for short-term work as part of the Kurzarbeit scheme.

8 million

6

In the 2009 recession, Germany utilised the Kurzabeit scheme and sent workers home in exchange for job guarantees.

4

2

2010

2015

2020

Source: Germany’s Federal Agency for Work

While those Europeans who could, saved, many of those in debt turned to their banks for help and secured payment holidays on tens of billions of euros of home and car loans.

Deep wounds remain

Such relief measures, however, have not prevented the pandemic from widening the gap between rich and poor. This is a trend that is more pronounced in Ireland and Germany than it is in Sweden.

Fresh data and analysis suggests that the pandemic is likely to lead to a dramatic increase in the working poor, following months of lockdowns. Many in low-paid jobs in hotels and tourism, in particular, have struggled as travel has ground to a halt.

“The impact of the pandemic is harder felt on workers with low education,” said Oxford University’s Juan Palomino. “Countries that rely on, say, tourism, as is often the case in the south of Europe, rather than banking or consulting in the north, are also more likely to have suffered increasing poverty.”

Researchers modelled scenarios for different countries which envisaged two months of lockdown and nine months of partial closures of businesses. In Ireland, the amount of “poor” workers — those earning less than 60% of the median salary — would increase from 27% before the crisis to 36.5%, under those circumstances.

40%

Percentage of poor workers before the pandemic

Ireland could see the number of poor workers climb to 36.5% after lockdown

Germany

30

Sweden

Other European countries

20

10

40%

Ireland could see the number of poor workers climb to 36.5% after lockdown

Percentage of poor workers before the pandemic

30

Germany

Sweden

Other

European

countries

20

10

Note: Three scenarios of employment are envisioned under closed industries functioning at 80%, 70% and 60%. This graphic uses the scenario in which industries are at 70% capacity assuming the closure lasts for 9 months. All scenarios are tested without accounting for government compensating measures.
Source: Results from Palomino, Rodríguez and Sebastian (European Economic Review, 2020), based on Eurostat's EU-SILC Data

The structure of an economy — how many are in jobs where it is easier to work from home without seeing your earnings dive — can be decisive in how well it weathers the storm.

Greece

23.9%

Cyprus

20.3

Malta

15.3

In 2016, Irish tourism industries employed 13.3% of those working in non-financial business — one of the highest in Europe.

Ireland

13.3

Austria

12.7

Spain

12.3

Croatia

12.2

UK

11.6

Portugal

11.3

Italy

10.3

Norway

9.9

Switzerland

9.1

Netherlands

8.8

Denmark

8.6

Sweden

8.5

Germany

8.4

Bulgaria

8.3

Luxembourg

8.0

Belgium

7.9

France

7.3

Latvia

7.0

Estonia

6.9

Hungary

6.9

Slovenia

6.7

Finland

6.4

Romania

5.9

Lithuania

5.5

Czech Republic

5.3

Slovakia

4.3

Poland

4.1

In 2016, Irish tourism industries employed 13.3% of those working in non-financial business — one of the highest in Europe.

Greece

23.9%

Cyprus

20.3

Malta

15.3

Ireland

13.3

Austria

12.7

Spain

12.3

Croatia

12.2

UK

11.6

Portugal

11.3

Italy

10.3

Norway

9.9

Switzerland

9.1

Netherlands

8.8

Denmark

8.6

Sweden

8.5

Germany

8.4

Bulgaria

8.3

Luxembourg

8.0

Belgium

7.9

France

7.3

Latvia

7.0

Estonia

6.9

Hungary

6.9

Slovenia

6.7

Finland

6.4

Romania

5.9

Lithuania

5.5

Czech Rep.

5.3

Slovakia

4.3

Poland

4.1

Source: Eurostat

Lockdowns are particularly difficult for countries with large services sectors. Irish tourism has come to a halt with strict lockdowns, and that is likely one factor driving pessimism there.

Edited by Jon McClure and Pravin Char