National Savings Ratio

IBISWorld forecasts the national savings rate to rise by 0.12 percentage points in 2024-25, to 5.78%. Household and corporate savings have been eaten into over the previous two years by persistently high inflation, rapidly rising interest rates and low growth in disposable incomes. The rate of inflation is expected to fall back towards the RBA’s target band of 1% to 3%. This may trigger a rate cut and help boost saving rates.

During times of economic uncertainty, households and businesses typically limit discretionary spending in favour of increasing savings and debt reduction. High inflation and rising interest rates are discouraging corporate capital expenditure as businesses look to shore up their balance sheets. In contrast, government savings tend to go into deficit in a bid to stimulate the economy. The COVID-19 pandemic caused an unprecedented collapse in private consumption spending due to varying degrees of trading restrictions in entertainment outlets such as pubs, restaurants, cinemas and theatres. In addition, international border closures significantly limited the amount Australians can spend on travel. These factors, in combination with sharp increases in disposable incomes due to government support mechanisms, caused the household savings ratio to increase strongly over the four years through 2021-22. However, the household savings ratio has since fallen. This was initially driven by the easing of pandemic restrictions and reopening of international borders, which encouraged greater spending. Decades high inflation and surging interest rates in an effort to combat this has further cut into national savings.