I Trends in National Saving

International Monetary Fund

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International Monetary Fund

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Language:: English

Print Publication Date:: 19 Mar 1990

Keywords:: OP; saving rate; rate; saving; investment; country; government saving; household saving; national saving; investment ratio; government dissaving; Private savings; Consumption; Income; Current account imbalances; Real interest rates; Middle East; Western Hemisphere; Asia and Pacific; Global; East Africa; saving data; saving behavior; domestic investment; high-saving country; Current account balance; Economic cooperation; Depreciation

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Abstract

This section reviews developments in national saving rates in industrial countries since 1960 and discusses short- and longer-run projections. The review aims to assess whether (1) overall saving rates for the industrial countries as a group have exhibited marked trends or cyclical movements; (2) there have been notable differences among countries in this regard; (3) developments in national saving rates have been dominated by changes in private or in public sector saving; and (4) shifts in saving rates have been reflected primarily in changes in domestic investment or in external current account balances.

Assessments of saving behavior require a judgment about the appropriate measure of saving. The present discussion is based on the standard national accounts data that are compiled according to the United Nations’ System of National Accounts (SNA) and that are regularly presented in the Fund’s International Financial Statistics. Although these data have the advantage of international comparability, they are subject to a number of caveats. The issues include the underreporting of income and saving associated with the existence of an underground economy and the large global current account discrepancy; the appropriate treatment of capital gains and inflation; measurement of depreciation; and separation of consumption from capital expenditures, particularly for investment in human capital and research and development and for consumer durables. These problems are discussed in some detail in Appendix I. That discussion concludes that there are good conceptual reasons to correct some of these problems by adjusting the saving data, particularly for capital gains. Such adjustments, however, would not be practical, given the state of the data. While distortions of the data are quantitatively important and affect both cross-country comparisons and the allocation of saving between the public and private sectors, none is likely to alter fundamentally the general conclusion that saving rates in most industrial countries have declined significantly in the last decade.

Overview of Major Developments

Chart 1 shows national saving rates, both gross and net of depreciation, for the industrial countries as a whole for the period 1965–87. Both of these measures indicate a clear negative trend from around 1973 through 1983, with levels in the mid-to-late 1980s that are several percentage points lower than those recorded up to 1973.

^{Chart 1.}

Industrial Countries: Gross and Net National Saving Rates, 1965–87 ¹

(In percent)

Source: Organization for Economic Cooperation and Development, National Accounts.¹ Gross saving as percentage of GNP; net saving as percentage of net national income.

Gross saving in industrial countries declined from 26 percent of gross national product (GNP) in 1973 to 19½ percent of GNP in 1983 before recovering slightly to 20 percent in 1987. Preliminary data indicate that gross saving may have risen by another ½ of 1 percent in 1988. For net saving, the secular decline is more marked (from a peak of 17 percent of GNP in 1973 to 8 percent in 1983), reflecting the sizable increase in depreciation charges over the period. The rise in depreciation was in part attributable to the higher rate of obsolescence in plant and capital equipment that resulted from the two energy shocks of 1973–74 and 1979–80 and from other structural changes such as the shift to ward shorter-lived equipment in the 1980s (see Appendix I, “Treatment of Depreciation”). The quality of the depreciation data is particularly weak, but even if the measured decline in net saving is somewhat overstated, there is little doubt that net saving has declined by more than gross saving.

Charts 2 and 3 show disaggregated saving for three major components—general government, households, and enterprises—for the five major industrial countries combined (United States, Japan, the Federal Republic of Germany, the United Kingdom, and Canada).² The dominant feature of these two charts is that the decline in national saving rates during the 1970s and early 1980s is due mainly to a drop in government saving. From 1973 to 1983, when gross national saving in these five countries fell by 5½ percent of GNP, some 4¾ percent was attributable to the government sector and the rest to households; enterprise saving rose slightly (Chart 2). On a net basis, the saving rates of all three sectors had negative trends over the full period shown in Chart 3, but again the decline in government saving dominated the decline in other components.

^{Chart 2.}

Selected Major Industrial Countries: Gross Saving Rates by Sector, 1965–87¹

(In percent of GNP)

Source: Organization for Economic Cooperation and Development, National Accounts.¹ Aggregate of the United States, Japan, the Federal Republic of Germany, the United Kingdom, and Canada.

^{Chart 3.}

Selected Major Industrial Countries: Net Saving Rates by Sector, 1965–87¹

(In percent of net national income)

Source: Organization for Economic Cooperation and Development, National Accounts.¹ Aggregate of the United States, Japan, the Federal Republic of Germany, the United Kingdom, and Canada.

Chart 4 depicts the identity between national saving, domestic investment, and the current account balance. This Chart reveals two noteworthy relationships. First, there is a very close correlation between domestic saving and investment for the industrial countries as a group. Both long-term trends and short-term variations in the aggregate saving rate are closely tracked by domestic investment. Second, shifts in the aggregate current account balance appear to be correlated, albeit weakly, with the broader swings in saving. For the period 1965—72, both aggregate saving and the current account balance strengthened, while in the period 1973–83 both aggregates declined. These developments were reflected in a shift in the pattern of global external imbalances, as the traditional surplus in the current account of the industrial countries vis-à-vis the rest of the world shifted to a deficit in the late 1970s.³ The link between aggregate saving and current account appears to have weakened since 1983: the current account balance of the major industrial countries has continued to deteriorate, while the aggregate saving rate has stabilized.

^{Chart 4.}

Industrial Countries: Gross National Saving, Gross Domestic Investment, and Current Account Balance, 1965–87

(In percent of GNP)