Rising deposits spell changes in consumption

The fall in savings as a percentage of available income is a long-term phenomenon and, according to Bank of Greece Governor Lucas Papademos in his recent annual report, has been a stable trend in the last few years. From 15.2 percent in 1995, savings declined to 10.8 percent of available income in 2000. The trend has been observed in other developed countries and confirmed by different measurement methods. Papademos notes in his report, however, that a reversal of the trend is now likely. Perhaps the ongoing reduction in consumption and growth of deposits are first indications of this reversal. In the last decade we witnessed a drastic change in consumer habits. The requirements of new households were large, accompanied by a desire to copy the patterns of other countries. This, combined with the fall in interest rates, the liberalization of consumer credit and the rise in public spending, led to a large increase in consumption. Now, although disposable income has risen, obtaining credit cards is easier and the credit limits higher, consumption seems to be falling. This explains why many firms are having trouble increasing their market share and some are even facing a problem surviving. Deposits rose 11.5 percent in 2001, several times higher than the inflation rate, although interest rates fell. This change, if confirmed, is bound to have serious repercussions; it will force many businesses to resort to increasingly aggressive sales promotion methods and cut costs. Some may have to reduce their range of products or services after rediscovering the old dictum, according to which 80 percent of profits comes from 20 percent of products (indeed, if one takes into account the profits that have to be re-invested for a firm to maintain its market share, the 20 percent of products represents an even larger proportion of revenues). On the other hand, banks and other firms in the investment and savings business have to create and sell new products which mainly offer certainty and long-term performance, even without high rates of return. If the rising rate for savings is confirmed, this will not necessarily mean a fall in consumption as incomes will also rise; but it will mean a change in the structure of consumption, that is, a different set of spending priorities. He said the new budgetary policy, expected to come into force next year, will set clearly defined and binding objectives as well as the projected financial needs for each and every program. The general accounting office will play a monitoring role.