The markets are focused on the light at the end of the tunnel: David Rosenberg
A higher savings rate stoked by fears of another pandemic could be a huge drag on the economy once COVID-19 is over, according to David Rosenberg.
The chief economist and strategist at Rosenberg Research & Associates said in an interview Wednesday that a higher level of precautionary savings could become the new norm once North America gets past the COVID-19 pandemic.
“The fear of a return of some other pandemic is going to be in our minds,” Rosenberg said. “That means that yes, we’re going to have a couple of quarters where we’re going to go out and eat, we’re going to have fun at the bars, we’re going to fly again. But I don’t think that’s going to last more than a couple of quarters because reality is going to bite that we did not have enough savings on hand.”
Rosenberg estimates the savings rate could rise from seven per cent to about 10 per cent of disposable income once the pandemic is over, which he said could translate to a $500 billion annual drag on consumer spending.
He said that the massive monetary and fiscal stimulus implemented in Canada and the U.S. clearly spell out that households did not have enough savings before the pandemic.
“It’s so obvious with all the need for all the stimulus, both monetary and fiscal, that we went into this mess with over half of the household sector not having enough savings, liquidity and cash on hand to get through three months of vital economic activity,” he said.
Rosenberg said the stimulus is only buying time and that markets and the economy will eventually have to face a “difficult life” once its effects run out.
“This has been a trauma and we all know with trauma that there’s going to be long-standing scars,” he said.