Saving as Economic Stimulus

Latest official data suggest that household savings in Bulgaria exceeded the amount of 36.5 billion leva – approximately half of the country’s gross domestic product. This saving trend, effective for a few years, implies pessimism and uncertainty among ordinary people.

Saving is usually considered passive economic behavior with no positive impact on economy. However, that is not completely accurate understanding since economic development is generally determined by both consumption and saving as inter-dependent and inter-related factors.

Can saving be an economic stimulus?

To provide an accurate and adequate answer to this question we should clarify the essence and origin of these resources (assets). Savings represent delayed consumption and usually derive from added value accumulation. That is why they can’t be dangerous for the economy by causing its “overheating” at a certain point.

Saving’s positive effect has a long-term impact. Bulgaria’s finance minister made a quite optimistic commentary on the savings increase information emphasizing the very fact that these funds are a warranty for a long-term economic prosperity. In his opinion savings should give banks opportunities for better liquidity, thereby providing more funding to businesses.

It is interesting to note that this is the first time when active savings have exceeded active loans in the country. That practically means banks currently possess the necessary funds to provide loans to businesses in the country with no need for foreign money transfers.

By all means, the latest new high of household savings in Bulgaria should be considered a sign of people’s negative expectations. However, optimism arise from the fact that the saving rate is slowing down which indicates more active consumption. Savings’ stability along with increased consumption should be the most appropriate and logical formula for returning to ostensible economic growth.

May 10th, 2014 Posted by RPNAdmin Filed in: Other