PER 2015
Germany Gross National Savings, % of GDP 2
As the euro’s value begins to decline relative to global currencies, German exports have become increasingly competitive in global markets which has triggered export led growth as confidence and economic stability in Germany’s major foreign trading partners such as the UK begin to grow. However, this is not a wholly reliable source of growth, as external factors such as fluctuations in the stability of trading partners and the strength of trade unions can hinder the performance of the macroeconomy greatly. For example, the recovery of the UK economy in recent years has been slowed by weak growth in the Euro area, hitting UK exports hard. Meanwhile, low inflation, which actually turned negative to -0.4% earlier this year, borne from falling oil prices leading to cheaper costs of production and as a result increasing aggregate supply, has amplified the spike in consumption as German households take advantage of low food and energy prices and, in the words of the Bank of England Governor Mark Carney “enjoy it while it lasts” 3 , in light of an impending rising price level as demand side growth thrives. On the contrary, the Chinese economy begs to differ, with national savings surging to just under 50% of GDP in 2015 and showing little signs of stopping. This comes as no surprise given the absence of a large welfare system, forcing Chinese households into vast precautionary saving in the face of low job security in the manufacturing sector and little presence of cheap healthcare, not to mention state housing and pension reforms. The demographic of modern China has also contributed to the boom in savings. This has been largely effected by the one child policy, meaning a significant proportion of the population are lower to middle age, an age which supposedly save more, according to Franco Modigliani’s ‘Life Cycle Hypothesis’. That being said, the ‘Consumption Smoothing’ theory, formalized by Robert Hall in 1978 conflicts this opinion, stating that consumers generally aspire to consume (and thus save) a constant amount throughout their lifetime. If this is true, there is one gaping hole in this theory; individuals cannot anticipate the future economic climate and know not whether there will be a recession in the coming years in which they could potentially lose their job, for example. Despite compromising the peace of mind of their people, a less prominent welfare system allows the Chinese government funds for fiscal loosening, bereft of a 2 http://www.tradingeconomics.com/germany/gross-national-savings-in-percent-of-gdp-imf-data.html 3 “Mark Carney: Enjoy low prices while you can” – The Telegraph (2015) http://www.telegraph.co.uk/finance/bank-of-england/11409986/Mark-Carney-enjoy-low-prices-while-you- can.html
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