Alain Tourdjman, Head of Economic Research at Groupe BPCE, and Eric Buffandeau, Deputy Head, presented the outlook for financial investments and residential real estate.
From ‘forced’ savings to precautionary savings
The compulsory stay-at-home period imposed for purely health reasons triggered an exceptional ‘managed’ collapse of the real economy. In France, it led to an impressive, one-off rise in the savings rate and a consequent increase in household financial investments in the first half of the year owing to an unprecedented contraction in consumption (forced savings) and the preservation of purchasing power thanks to the short-time working mechanism (furlough). It has been estimated that financial investments measured in terms of surpluses (financial flows excluding interest and the capitalization of interest) amounted to almost €39 billion more than in the more normal period running from March to May 2020. These surpluses were chiefly driven by sight deposits and, to a lesser extent, by passbook savings accounts at the expense of life insurance, which suffered above all from a decline in contributions from euro funds.
These forced savings should be expected to deflate from July onwards with the gradual lifting of the lockdown measures and a rebound in consumer spending while still remaining high owing to rising unemployment, a continuing sense of uncertainty about the health situation, behavior patterns influenced by a ‘wait-and-see’ attitude, and even a reconsideration of individuals’ consumption habits. Moreover, a relative inertia in savings behavior is typically observed in the wake of an ‘accidental’ shock, once the technical rebound in consumption has passed. Thus, in 2021, the savings rate (17.4% compared to 22.2% in 2020) and financial investments (€65.6 billion, compared to €89.4 billion in 2020) is expected to decline reaching a new level remaining very high compared to historical levels. This expansion/contraction – a repercussion of the shift from forced savings to precautionary savings – will probably produce arbitrage decisions still influenced by a wait-and-see attitude, a search for security and readily available savings at the expense of an appetite for risk as a result of unusually low interest rates. Life insurance, however, should nevertheless rebound in 2021 (recovery of euro-denominated products and relative resistance of unit-linked policies) but will rise to levels much lower than in 2019.
Residential real estate: the end of exuberance?
With regard to housing, the first available figures allow us to gauge the impact of the crisis. While the image enjoyed by real estate remains strong, it has not escaped the widespread wait-and-see attitude adopted by households in general. There has been a major decline in new real estate construction as well as in the sales of existing properties; a large part of this lost business will be impossible to recover and a return to normal is unlikely before 2022. On the other hand, against a background of what remain historically low interest rates (unlike in 2009) that mitigate the slowdown in the home loan market, prices are holding up and should only experience a delayed and very partial adjustment between now and 2021 in the wake of the collapse in volumes.