Developed-market (DM) household savings recorded a significant gain last year, with an increase equivalent to 10% of combined gross domestic product (GDP). This build-up is likely to bolster consumption as restrictions on economic and social activity are removed and pent-up demand unlocked. But the accompanying deterioration in public sector balance sheets and uneven distribution of surplus savings mean the impact is unlikely to be anywhere near as big as the headline numbers suggest.

The global economy is about to enter a period in which annual growth rates will reach undreamt-of highs. However, much of this growth will be artificial—simply reflecting that more of the economy is open today than was the case a year ago. A genuine upside surprise requires more than positive base effects. One area that might provide such a surprise is the unlocking of forced household savings. Savings rates increased across the developed world last year, as governments successfully propped up aggregate income at a time when consumption was constrained by lockdowns (Display above, left).

We estimate that the DM gross household savings rate rose from 11% in 2019 to 19% last year. Similarly, the household sector’s holdings of currency and bank deposits rose from US$1.4 trillion at the end of 2019 to US$4.3 trillion at the end of last year. This increase represents around 10% of combined DM GDP, a significant gain. Were all of it to be spent over the next two or three years, it would provide a substantial boost to economic growth.

But it’s not quite that simple. There are two important caveats: