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The second UniCredit-Pioneer Investments Savings Observatory Report

 

  • The Italian household savings rate is expected to improve slightly in 2013, most likely rising from 8.4% in 2012 to 8.9%
  • In terms of wealth, in Italy the strong performance of shares, mutual funds and bonds has enabled financial assets to appreciate in value by 4.1%, helping to bridge the gap compared with the pre-crisis values at the end of 2007. With the exception of Greece, in 2012 financial assets grew in all countries compared with the previous year
  • The conservative allocation of Italian household portfolios, characterised by a strong liquid and bond component (about 51%), has helped preserve the stock of wealth in turbulent market conditions. With the gradual normalisation of the markets, it would be advisable to increase the exposure to higher-risk investments, also taking advantage of the benefits of diversification, through professionally managed  instruments
  • For 2013, the South of Italy has been confirmed as the area with the highest levels of propensity to save, although a general increase in the saving rate is expected for other areas of Italy in the current year. In terms of stocks, financial wealth remains concentrated mainly in the northern regions, where households hold 60% of the total financial assets of the country.
  • Increased sources of funding for SMEs, together with a more active role for institutional investors and the rebalancing of households portfolios are complementary elements that are necessary to inject momentum into the Italian economy

 

 

The results of the second UniCredit-Pioneer Investments Savings Observatory Report were presented in Milan today. The study, entitled "Mobilising savings towards productive uses", considers the most recent savings trends in Italy and compares them with the patterns found in other European countries, the United States and Japan. It also analyses the composition of wealth and the best ways to allocate it, identifying the conditions that can help lead the country towards a new path of growth.

Some initial positive signs emerge from the Report, with individuals gradually regaining their confidence and resources, despite the economic framework still being in a phase of adjustment.

 

 

Savings down compared with 2007, but with positive signs particularly in 2013

The crisis has weakened the savings capacity of Italian consumer households who, faced with a decline in real income per household of 16% between 2007 and 2012, have reacted by spending less (-12%) and reducing the share of resources set aside for the future. Savings of 6000 euros per household in 2007, equal to 12.6% of the available gross income, fell to 3400 euros in 2012, equating to 8.4% of the available gross income.

 

With the exception of Germany, international comparison shows widespread difficulties for households, especially in Europe. This situation reflected the downturn of the real economy, which in turn impacted the savings capacity of households, although the impact has been differentiated. In Italy, as in Austria, Spain and Greece, there was a decline in the propensity to save between 2007 and 2012. In Greece, in particular, the saving rate was negative (-6.2%), an indication of an internal situation of high financial difficulty. For the remaining countries, although down, rates remained above the 8% threshold in 2012 as well. In Germany and France, on the other hand, savings did not fluctuate significantly and remained consistently above 15%. In the United States and the United Kingdom, the propensity to save actually increased from a figure of less than 5% in 2007 to over 7%.

 

In order to understand which factors have determined the evolution of savings over the past 16 years, a statistical/econometric analysis was carried out, assessing the impact of various financial, economic and demographic variables. The result confirms that the fall in income and the increase in taxes have been the key elements to reducing the rate of savings in recent years in Italy and other eurozone countries.

 

The effects of an upturn in economic activity should, in 2014, lead to a significant improvement in households' confidence and budgetary constraints. According to the Observatory, however, 2013 could already see an increase in savings (with the saving rate of consumer households rising from 8.4% in 2012 to 8.9%) and a revival of investment, especially financial. This scenario is confirmed by recent surveys on consumer confidence, which indicate a marked improvement in the general index and show, among other things, a leap forwards in the percentage of individuals who believe they can save over the next 12 months (up from 25% at the end of 2012 to 38% in the third quarter of 2013). In addition, data recently released by ISTAT (the Italian National Institute for Statistics) for the first half of 2013 already show a growing propensity to save compared with the same period in 2012 (an increase from 8.7% to 9.5%).

 

With regard to financial savings, in 2012 households invested 16 billion euro in financial assets, a positive figure despite being a long way off pre-crisis levels. In addition, new investments in financial assets are expected to reach 21 billion euro in 2013, with significant flows towards managed products.

 

Clear recovery of wealth, but more diversification is needed

The good news in terms of wealth is that, with the exception of Greece, in 2012 financial assets grew in all countries compared with the previous year, thanks also to positive market performance. In Italy, the strong performance of shares, mutual funds and bonds has enabled financial assets to appreciate in value by 4.1%, helping to bridge the gap compared with the pre-crisis values at the end of 2007. The forecast of further growth in 2013, thanks both to new saving flows and to the appreciation of existing stock, should ensure that this threshold is definitely crossed.

International comparison also shows that, in Italy, if evaluated per capita, financial net worth (net of liabilities) in 2012 was 46,700 euros, higher than that of the major eurozone countries, including France (44,500 euros) and Germany (41,100 euros). Combining financial assets with real ones confirms a strong position: at the end of 2012 Italian households had, per capita, a net wealth equal to 145,000 euros, lower than that of French households (164,000 euros), but much higher than that of German households (119,000 euros), and not too far from the British (149,000 euros) and Japanese (153,000 euros) net wealth values.

 

Despite the crisis, households wealth was therefore well maintained. The strong liquid and bond components of the portfolios of Italian households (51%), combined with traditional investments in insurance and mutual funds, invested for the most part in low-risk areas, have in fact so far contributed to limiting the volatility of returns, helping to preserve the stock of wealth even in turbulent market conditions.

However, if on the one hand a strategy based on conservative investments (i.e. simple financial instruments with a low risk profile, but consequently also low returns) has made it possible to limit volatility during the crisis, on the other hand, with the gradual normalisation of the markets, it would be advisable to increase the exposure to higher-risk investments, also taking advantage of the benefits of diversification, through professionally managed  instruments, like mutual funds and pension funds, with a medium to long term horizon.

 

For the future, it is important that households make allocative choices that improve the overall efficiency of their portfolios. The operation is not simple, and requires a certain level of financial education and significant knowledge of the markets. For this reason, it will certainly be helpful to turn to professionals. Banks and asset managers should be ready to take on the challenge and to establish a fresh relationship with savers based on transparency and trust.

 

 

Household savings and business funding: an opportunity to be seized

This year's report aimed to try and link the theme of savings and household wealth with that of financial arrangements for industry, through investment tools to strengthen the financial structure of companies. In Italy, in fact, high levels of household wealth, relatively unexposed to debt, are not accompanied by equivalent levels for companies, which are still reluctant to use the capital market and are very dependent on bank loans for their funding. In 2012, the market capitalisation of Italian non-financial firms in relation to GDP was in fact 19%, compared with 36% in Germany and 52% in France, while non-financial company bank debt was equal to 68% of total financial debt, compared with 50% in Germany and 38% in France. For this reason, we believe that recent legislative measures are moving in the right direction. These measures are aimed at conveying new financial resources towards companies through the use of so-called mini-bonds, thus making up the Italian production system's delay using this source of funding compared with other European countries.

Insurance companies and pension funds, at least initially, should be the most active actors in the subscription of such products. Institutional investors are called upon to play a fundamental role, that of acting as a bridge between households and companies in order to drive wealth towards investments with greater growth potential and contribute to a new phase of development for the country.

 

The propensity to save is increasing at a local level, despite a prevalent precautionary trend

The analysis carried out at a local level confirms that the South of Italy is the area with the highest levels of propensity to save in 2013. Other areas also show a general increase in the saving rate for the current year, thus building on the trend of 2012, with the exception of the central region, which experienced a sharp decline last year. However, income dynamics, measured in real terms, make us think once more of precautionary savings, with a parallel reduction in consumer spending. In particular, the economic-financial crisis , has especially penalised the South of Italy, with a decline in per-capita income in 2012 that has exceeded 6%, also in light of the austerity measures taken by the governments.

In terms of stocks, financial wealth remains concentrated mainly in the northern regions, where households consistently hold above 60% of the total. This fact makes it easier to understand consumer behaviour: the greater stock of wealth accumulated in the northern regions is in fact a way to integrate labour income in its various forms and helps to keep the level of consumer spending more stable even in less favourable moments of the economic cycle.

Looking at the composition of wealth, the South of Italy continued to demonstrate a strong propensity for liquid instruments, with over 50% of their financial assets held in bank or post office accounts. As a result, the overall portfolio is orientated towards simple financial instruments, with a low risk profile, but consequently also low returns.

 

Conclusions

 

In spite of the crisis, therefore, Italian households remain sound from a patrimonial point of view, with net financial wealth in recovery and real assets that, despite a difficult real estate market, hold their value over time. Whilst it may be true that the key to getting people saving again is the recovery of the economy and incomes, including implementation of major structural reforms, a more efficient management of wealth can also make a vital contribution to stabilising and integrating household incomes. This final element can also contribute to sustain Italian firms' borrowing needs, thanks to innovative instruments, able to drive savings towards productive investments like mini-bond and securitization.

 

 

Milan, 24 October 2013