Financial investments flows and arbitrage decisions should gradually return to normal

2024 review: the paradox posed by savings and investments

Public debt: the end of collective denial?

The 18^th instalment of the barometer survey carried out by BPCE L’Observatoire and the Audirep marketing research institute shows a significant easing of the financial constraints weighing down on households in France. The French noted the decline in inflation in 2024 and the related gains in purchasing power, and their perception of their previous financial situation – along with their expectations of future income – have improved slightly. The incentive to put money aside, however, remained strong. The resurgence of specific worries – such as the fear of losing their jobs, the effects of political uncertainty resulting from the dissolution of the French National Assembly, or concern about imbalances in the State budget – have partially displaced people’s worries about declining purchasing power and the effect of the real level of their cash reserves (savings typically increase during periods of inflation to offset the declining purchasing power of financial assets).

71% of French people say they are concerned about the level of public debt

Net financial flows at low levels in 2024

The savings rate is consequently expected to remain very high in 2024, at 17.9% (peaking at 18.2% in Q3 2024 following the application of the new definition of this metric) compared with an average of 14.6% between 2010 and 2019. On the other hand, as in 2023, flows of financial investments, i.e. the additional amounts invested in financial assets (passbook savings accounts, sight and time deposits, mutual funds, equities, life insurance, etc.) is expected to remain at an all-time low in 2024. In fact, the correlation sometimes observed between the savings rate and the financial investment rate is insufficient to explain changes in the latter. The financial investment rate also depends on the availability of credit. The provision of credit automatically frees up resources for financial flows, and credit restrictions make it necessary to mobilize existing financial assets to satisfy higher contribution rates, or to proceed more frequently with transactions unsupported by borrowed money. The downturn in home loans in 2024 continued to exert negative pressure on household budgets that were less frequently buoyed up by cash from net property sales available for investment, to the effect that the French were more likely to dispose of existing financial assets to finance their acquisition operations.

Less frequent arbitrages between assets than in 2023

Financial flows (excluding securities and capitalized interest) reached a total of 32.1 billion euros from January to September 2024, less than half of the 2018-2019 average, the benchmark for the period before the COVID crisis. These flows, representing a total not far from the 2023 level, did, however, lead to stock arbitrages at a much lower level than last year: apart from net outflows from PEL home savings plans (-27.7 billion euros), there were less significant movements on most investment vehicles. New deposits on tax-exempt passbook savings accounts and term accounts were down by more than 50% vs. 2023, while net outflows from taxable passbook savings accounts and, above all, from sight deposit accounts were significantly reduced. Lastly, the very strong growth in life insurance can be attributed to the good performance – and even a kind of ‘renaissance’ – enjoyed by euro-denominated funds with the decline in inflation (the latter-mentioned funds being less penalized by low real yields) and to continued dynamic inflows into unit-linked products with a decline in benefits explained by reduced competition from alternative vehicles.

Stock markets and cryptocurrencies: how keen are the French?

Less risk aversion

The French continue to demonstrate a strong aversion to risk with 52% refusing to consider any risk at all, even if it means accepting a lower return on their investments. Over the medium term, however, we can note a significant increase in the proportion of those who plan to include a degree of risk in their financial strategy. But this relatively wider acceptance of risk has only benefited unit-linked life insurance and employee savings plans. Aggregate investment flows since 2010 have been virtually zero in equities and sharply negative in mutual funds and bonds. The low level of equity purchases, however, with a negative annual net flow observed over the past five quarters, masks a variety of investment strategies, notably between traditional investors and neo-investors, that we approach in this study from the point of view of cryptocurrency holdings.

Cryptocurrency holders: a very clear-cut profile

Speculative bubble, risk of fraud… a majority of French people share this negative image of cryptocurrencies. However, it is worth paying attention to three indicators: the significant growth in the French public’s awareness of this image, the proportion of French people having no idea about the subject is now marginal and, lastly, the percentage of those who are interested continues to rise (15% of French people have already invested in this currency or are considering doing so). 4.5% of the French population currently hold cryptocurrency investments and their profile is chiefly male, urban and high-income, with 82% of men, 89% living in large conurbations, and with an average income double the national average. They are also individuals who are highly invested in their wealth-management choices, often experts in their field, and owners of highly diversified assets.

15% of French people have already invested in cryptocurrencies or are considering doing so

Atypical financial practices

Cryptocurrency holders also have very different strategies from traditional investors in risky assets: a very high frequency of purchase or sale, a high portfolio turnover rate, a preference for high capital gains, even if it means accepting greater risk, a strong reactivity to the economic climate rather than adopting a long-term investor profile.

The outlook for savings and investments in 2025: in a new interest-rate environment and the prospect of continuing political uncertainty

54% of French people plan to cut back on their spending or forego certain expenses

In France, the dissolution of the National Assembly triggered a period of profound political and economic uncertainty, a situation that the subsequent general elections failed to resolve despite the urgent need to reduce the public deficit. Added to this are other major uncertainties, such as the nature of American protectionism and its effect on the eurozone economy, and the continuing high geopolitical risks. Faced with this uncertainty, 88% of French people are worried about the national finances, and 54% are planning to cut back or forego some of their spending. Against this backdrop, the savings rate is likely to remain exceptionally high, with 83% of French people fearing a future tax hike to correct the drift in the State budget since 2023. The savings rate is expected to reach 17.6% in 2025, after 17.9% in 2024, compared with 14.4% between 1992 and 2019, a trend that will limit household consumption despite falling inflation, and depress GDP growth, which is expected to rise by just 0.8% in 2025, after 1.1% in 2024.

A return to normal for household financial arbitrage decisions

After record arbitrages in financial investments in 2023, financial flows and arbitrage are expected gradually to return to normal in 2025, a phenomenon that has already begun in 2024. Surplus financial investments (flows excluding interest capitalization and stock market valuation) are expected to stand at 36.8 billion euros in 2025, slightly less than in 2024, after 18.8 billion euros in 2023, but 93.8 billion euros in 2022.

In 2023, the most liquid and immediately mobilizable compartments, such as sight deposits and B-CSL passbook savings accounts, saw a dramatic shift towards investments providing initial protection against inflation thanks, in particular, to successive rises in regulated interest rates or a prospective higher yield effect linked to rising market rates, notably on term accounts (+78 billion euros). The impact of this phenomenon, which started to decline in 2024, is expected to be more markedly reduced from 2025 onwards owing to the fall in key rates and the sharp drop in regulated rates, not to mention the lower rate of inflation. This form of competition for liquidity is therefore expected to fade gradually, and the inertia of long-term rates should strengthen the appeal of long-term products. It is widely assumed that the rate of interest paid on Livret A passbook savings accounts (3%) will fall to 2.5% and the LEP popular savings account rate (4%) will be reduced to 3% in February 2025. Our model – which usually provides satisfactory results, with an overall neutral effect on total investments – allows us to trace the impacts of these developments, with a negative effect of lower inflows on the LEP, Livret A and Livret DDS (sustainable and solidary development) passbook savings accounts, and a positive effect on sight deposits, life insurance and term accounts. Overall, new deposits on tax-exempt savings accounts are expected to fall from 29.1 billion euros in 2024 to 6.3 billion euros in 2025.

Arbitrage on stocks are therefore expected to ease owing both to the virtual stability in demand deposits and to the slower rate of outflows from tax-exempt passbooks and even PEL home purchase plans. Life insurance should benefit from the decline in regulated rates, with inflows of 32 billion euros from the relative rebalancing between euro funds and unit-linked products, and from the marked reduction in the supply effect on term accounts, with inflows of around 18 billion euros in 2025 compared with over 32 billion euros in 2024.