Household savings are growing more slowly than GDP; this may indicate an overheated economy – in Latvia

Total household savings in Latvia has risen by nearly one billion euros over the past year, said the Financial Markets and Capital Commission (FCMC).

Summarizing the annual results of the implementation of the "Financial Literacy Strategy of Latvian Citizens for the period 2014-2020", the CFMC concluded that in 2018, the strategic achievement indicators of financial literacy generally confirm the desired orientation, even ahead of some indicators. This includes an increasingly healthy loan-to-deposit ratio (71/100) and growing confidence in service providers, but the increase in savings is disproportionate to that of gross domestic product (GDP), which is indicative of economic overheating.

In badessing the achievement of the strategic objective "Planning and traditional savings", it is concluded that the tradition was reinforced during the economic growth phase. In 2018, the overall savings of Latvian households increased by nearly one billion euros to reach 11.2 billion euros by the end of 2017. 4 billion).

However, FCMC experts believe that to ensure the financial sustainability of households in the near future, it would be necessary to broaden the "safety cushion" in the form of various financial services, the economy of last year being lower than GDP.

"The financial well-being of households has continued to improve in recent years, but the indicators show signs of economic overheating." With the population's optimism rising, spending has increased, but the economy has not improved. savings are growing more slowly than GDP in times of economic overheating. "Excessive debt, especially disproportionate short-term debt, can place a heavy burden on debt," said Agris Rozentāls, Senior Financial Markets Analyst at FCMC.

On the other hand, the indicators relating to the achievement of the second strategic objective "Integrity of the financial services environment" show that the number of participants in the third pillar of the pension system (private pension funds) has increased 17,342 people to 303,849 people. 1442 new life insurance contracts with savings have been concluded and Latvian residents are baduming more and more risks – 211 euros on average per capita (in 2017: 168 euros). Overall, trust in financial service providers is increasing, reaching 51% (44% in 2017), including the highest level of the insurance sector with 73% (62% in 2017).

CPR also noted that delinquent loans in the banking sector had fallen to 2.7%, which is below the expected strategic target level (the highest level of delinquent liabilities in the banking sector was in 2011 – 19 , 6%). The number of mortgage-backed loans granted to households (over 90 days in arrears) in the banking sector also decreased significantly, reaching 2598 for an amount of EUR 88 million (3,276 in 2007). 2012 for an amount of 121 million EUR). Last year, banks granted new mortgages worth EUR 390 million to 10,861 households (compared with EUR 423 million in 2017). National micro, small and medium-sized enterprises as a whole received 4,216 loans of EUR 540 million from banks.

The stability of the national economic situation as well as the low interest rates in the euro area ensure the financial well-being of Latvian households and a certain optimism regarding the third objective of financial literacy – "Financial sustainability and development of society" noted the FCMC.