Canada | Excess savings seem big, but are smaller than you think

Canadian Households accumulated C$184bn in gross excess savings between Q1 2020 and Q1 2021. That pool likely expanded as tighter health restrictions to contain the third coronavirus wave limited spending opportunities in Q2. But the true stockpile of liquid excess savings is much smaller.

What you will learn:

• A portion of the excess savings has already been used to pay down debt and invest. By our count, households currently hold about C$100bn in spare cash.
• Just over half of the excess savings, we estimate, is held by the top two income quintiles, which typically have lower marginal propensity to consume and are less budget constrained.
• We expect the release of pent-up demand, particularly for services restricted during the pandemic, will fuel a 14% average annualized surge in consumption in H2 2021, underpinning our forecast for 6.1% growth in personal expenditures this year before a similar 6.2% advance in 2022.