Chart of the Week: Record rates of household saving point to upside risks through next year

In the early days of the pandemic, Fathom advocated that substantial fiscal support packages be put in place to support firms and workers affected by the necessary public health response to COVID-19. By and large governments, particularly in the developed economies, have delivered up to now. With identified cases rising rapidly, many countries in Europe have started to reimpose restrictions on economic activity, albeit at the local rather than the national level. It remains to be seen whether support packages on a par with those seen earlier in the year will be offered. Nevertheless, with government financing costs at record lows, and with reports that a number of vaccines are likely to be available within months, the pressure on finance ministers to extend, or reopen, schemes put in place during the first wave, is likely to prove insurmountable. The downside risks to growth in the near term are, of course, plain to see. Looking further ahead, however, the unprecedented increase in household saving, as major economy governments have used public money to compensate workers for economic activity that has not taken place, suggests there may be upside risks, both to activity and to inflation, through next year.