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Dear maria, We just published a new blog—please find the full text below. Europe’s Consumers are Sitting on 1 Trillion Euros in Pandemic Savings (Photo: IMF photo/Cyril Marchilhacy) By Thomas McGregor, Nujin Suphaphiphat and Frederik Toscani In ordinary times, Europeans save around 12 percent of their income. But as families stayed at home and furlough schemes supported income during the pandemic, this savings rate increased sharply to almost 19 percent in 2020 and 2021. As shown in this Chart of the Week, we estimate that households in the euro area saved nearly 1 trillion euros more in those two years than they would have done if the pandemic never happened. In other words, people saved a record sum—equivalent to around 8 percent of total euro-area gross domestic product. Euro-area economic growth and potentially inflation would get a big boost if consumers were to spend part of their excess savings by temporarily reducing the rate at which they save to below that seen prior to the pandemic. This would be consistent with the pattern after some previous pandemics and severe economic shocks, when households saved a much smaller proportion of their income than they had done historically. Even a moderate increase in spending—if households were to use about one-third of their excess savings for higher consumption over two years, say—would add 2.5 percentage points to GDP and up to 0.75 percentage point to inflation by the end of the second year. Some unwinding but no spending spree Half of the euro area’s excess savings are in bank accounts, meaning they could, in principle, be easily accessed and spent once pandemic restrictions are lifted. And most of the savings were forced, not precautionary as is more common during recessions when people worry about future income, suggesting that they may be spent soon. Yet there are four reasons these savings may not be released into the real economy in a hurry. First, the sort of expenditure that households were forced to forgo during the pandemic is not easily replaced. Almost 80 percent of the total spending drop in 2020 stemmed from declines in hospitality and transport. Consumers are unlikely to ever make up for all the cancelled airline flights, hotel stays or restaurant meals. Second, excess savings mostly accrued to those with high incomes. In France, for example, the richest 10 percent of households increased savings substantially even as some poorer families reduced savings, bank data show. High-earners typically save a larger share of their income and so are less likely to spend their savings. Third, supply chain problems mean many may struggle to spend their savings—even if they wish to. Long delivery times and higher prices are making it harder for consumers to substitute what they would ordinarily have spent on services with increased spending on goods (though this pent-up demand could boost consumption of goods in the future). And fourth, the spread of the Omicron variant means Europeans may be forced to save for a little longer. Uncertainty surrounding the outlook for consumption remains exceptionally high. Policymakers should keep a close watch on savings rates as they assess the strength of the recovery—and, if necessary, adjust monetary and fiscal policy to ensure sustained and equitable growth and to preserve price stability. ******

Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. Read more of our latest content here. Take good care!

For too long, many countries have ignored asset valuation and management.

Dear maria, Welcome to the Weekend Read! In today's edition we explore, among other things, the challenges facing the euro area economy, central bank digital currencies, the difficulties firms face hiring workers, and how the pandemic exposed weaknesses in the social contract and what can be done to build a more inclusive future.  Euro Area (Photo: kontrast-fotodesign/iStock by Getty Images) Europe's Economy is Recovering Economic policies in the euro area have supported household incomes and protected corporate balance sheets, while high levels of vaccination and increasing adaptation to the pandemic have also helped to foster a strong economic recovery, the IMF’s Europe Department says in a new Country Focus article. Drawing on a staff report released on Monday, the authors say that the challenge is to coordinate the normalization of economic policy in the face of elevated uncertainty, including the evolution and legacies of the pandemic, as well as ongoing geopolitical tensions. --Inflation Risks: Under the baseline, medium-term inflation dynamics are expected to remain weak. But upside inflation risks have clearly increased, and the European Central Bank should stand ready to adjust course as needed. Some euro area countries could tighten their macroprudential stance given stretched asset valuations, especially in real estate markets. --Labor Recovery: The labor market recovered rapidly but unevenly across sectors. Policies need to facilitate labor reallocation and protect the vulnerable, which includes reskilling and upskilling workers, using hiring subsidies, and enhancing targeted safety nets.  Watch the Director of the IMF's European Department, Alfred Kammer, update the European Parliament on the outlook, and download the presentation here.   Digital Currencies (Photo: Justhavealook/iStock by Getty Images) Central Bank Digital Currencies Around the world, central banks are pondering whether to issue their own digital currencies to the public. A new IMF Fintech Note shares insights, lessons and questions from six countries at the CBDC frontier, from China to Sweden. Speaking at the launch of the note on Wednesday, IMF Managing Director Kristalina Georgieva said that central banks have moved beyond the conceptual stage and were now experimenting with digital currencies. “Central banks are rolling up their sleeves and familiarizing themselves with the bits and bytes of digital money,” she said in opening remarks to the event, hosted by the Atlantic Council. Around 100 countries are exploring CBDCs in one way or another. In the Bahamas, the Sand Dollar has been in circulation for over a year. And in China, more than a hundred million people use the digital renminbi. --Common Lessons: Kristalina said there were three common lessons: there is no universal case for CBDCs because each economy is different; financial stability and privacy considerations are paramount to the design of CBDCs; and introducing a CBDC is about finding a balance between developments on the design front and on the policy front.  Watch a video of the event, also featuring Tobias Adrian, Director of the IMF’s Monetary and Capital Markets Department, and find all the IMF’s Fintech Notes along with blogs, videos and other related content here. F&D (Image: Porter Gifford) People in Economics Ever since she produced a report on elephants in the first grade, Amy Finkelstein knew she would be a scholar like her parents. But it wasn’t until her senior year at Harvard College that she chose economics. Majoring in political science, she decided to take a course in applied microeconomics. “That was a totally transformative experience for me,” Finkelstein says. “It opened my eyes to the idea that one could use data to inform what had otherwise seemed like ideological debates.” In the years since, Finkelstein, who now teaches at the Massachusetts Institute of Technology (MIT), has established herself among the country’s preeminent health economists. Her work ranges from estimating the welfare benefits of alternative social insurance programs to the effectiveness of mammogram screening. The common thread: using large data sets to test economic models—and arriving at conclusions that often challenge conventional wisdom. Read the entire article.   Coming Soon: F&D March Issue "Rethinking Fiscal" Our upcoming issue of Finance & Development will focus on how the pandemic has forced a rethink of fiscal policy. Fresh insights and analysis from Vitor Gaspar, Olivier Blanchard, Ceyla Pazarbasioglu, Carmen Reinhart, Arminio Fraga, Ricardo Reis, Emmanuel Saez, Felipe Larraín, and more will delve into issues of spending, debt and the role of government in economic life. The issue will also explore how some countries are innovating in areas of climate, transparency, and digitalization; the role of taxation; and how fiscal policy can be used to curb inequalities.  Take a look back at our December Issue of Finance & Development.  Want to get a print copy delivered to your home or office? Click here to subscribe.   (Photo: RichLegg/iStock)   Labor Puzzle As economies recover from the pandemic, why are companies having such a hard time hiring workers? In a new podcast, journalist Rhoda Metcalfe asks economists Carlo Pizzinelli and Ippei Shibata what's behind the labor shortage in many advanced economies. (Photo: IMF)   Social Contract COVID-19 has led to a crisis like no other and highlighted weaknesses in the current social contract. IMF Director Kristalina Georgieva joined the LSE's Baroness Minouche Shafik for a live conversation moderated by CNN’s Eleni Giokos to discuss options for a more inclusive future. (Photo: Cory Hancock/IMF)   Essential Reading: COVID-19 The pandemic is continuing to disrupt the global economy. Check out our eLibrary section on issues related to COVID-19. You can find IMF research on everything from vaccines to remittances to how the pandemic is affecting the economic outlook at both a global and regional level. Quote of the Week "The history of money is entering a new chapter." —The IMF's Kristalina Georgieva speaking about central bank digital currencies at the Atlantic Council on Wednesday. WEEKLY ROUND-UP 01. Inclusive Growth Rising inequality and widespread poverty, social unrest and polarization, gender and ethnic disparities, declining social mobility, economic fragility, unbalanced growth due to technology and globalization, and existential danger from climate change are urgent global concerns. On Thursday IMF Director Kristalina Georgieva and Valerie Cerra, Assistant Director of the IMF's Fiscal Affairs Department, spoke at the Center for Global Development at the launch of a new book, How to Achieve Inclusive Growth, co-published by the IMF and Oxford University Press. Watch a video of the event here. 02. Taxes and Gender Taxes can impact men and women differently. A recent IMF staff paper provides an overview of the relation between tax policy and gender equality, covering labor, capital and wealth, as well as consumption taxes. The analysis by the IMF's Maria Delgado Coelho, Aieshwarya Davis, Alexander D. Klemm, and Carolina Osorio Buitron finds that explicitly neutral tax policy can have first-order effects on important dimensions of inequality and that gender impact should be part of policy design. 03. Latin America A recent IMF staff paper from Santiago Acosta-Ormaechea, Samuel Pienknagura, and Carlo Pizzinelli provides an overview of taxes in Latin America and the Caribbean before the pandemic, compares them with OECD countries, and recommends tax reforms to encourage strong and inclusive growth. Read a related Country Focus article on how taxes can support growth and reduce inequality in the region. 04. Supporting Financial Resilience The IMF's Monetary & Capital Markets Department released its Capacity Development Strategy 2022-25 on "Supporting Financial Resilience Through Disruption & Change.” It outlines the IMF's approach to capacity development in support of global financial & monetary stability, from digital currency and crypto assets to cyber risks and debt management. Read here. As Europe's families stayed at home and furlough schemes supported income during the pandemic, savings rates increased sharply. As shown in this Chart of the Week by Thomas McGregor, Nujin Suphaphiphat and Frederik Toscani, households in the euro area saved nearly one trillion euros more in 2020 and 2021 than they would have done if the pandemic never happened. Euro-area economic growth and potentially inflation would get a big boost if consumers were to spend part of their excess savings. Yet there are four reasons these savings may not be released into the real economy in a hurry, the authors say. Adam Behsudi Editor IMF Weekend Read abehsudi@IMF.org   P.S. Be sure to let us know what issues and trends we should have on our radar.