Americans are sitting on $2.6 trillion in excess savings from the pandemic that can help power a recovery, Moody's says

• Americans have excess savings worth $2.6 trillion since the start of COVID, Moody's Analytics reports.
• The firm said this should power a spending boom that will boost the economy.
• But the rich saving more and being less likely to spend could hold back stronger growth, it said.

Americans have built up excess savings worth $2.6 trillion since the start of the coronavirus pandemic that will help power the economy's recovery from the crisis, according to Moody's Analytics.

The US has amassed the most excess savings of any country, with the cash pile amounting to 12% of gross domestic product.

Around the world, people have built up extra savings worth $5.4 trillion, equal to around 6.5% of GDP. Savings have shot up as opportunities for spending have been limited by lockdowns but central banks and governments have pumped money into economies to support employment.

"An unleashing of significant pent-up demand and overflowing excess saving will drive a surge in consumer spending across the globe as countries approach herd immunity and open up," said Mark Zandi, chief economist at Moody's Analytics, a sister company of the credit ratings agency, in a note.

Zandi said Moody's expects 20% of the US excess savings to be spent in 2021, adding 2.4 percentage points to real GDP growth in 2021. The analysis company expects the US economy to grow 6.4% in 2021 after shrinking 3.5% in 2020.

A further 20% will then be spent in 2022, Moody's predicted, adding another 2.4 percentage points to annual growth, which is set to come in at 5.3%.

However, Zandi said the unequal nature of the savings built up in the US would limit an even bigger boom in spending.

"Much of the excess saving has been by high-income, high-net-worth households who are likely to treat the saving more like wealth than income, and will thus spend much of less it, at least quickly," he said.

Moody's data showed that nearly two-thirds of the excess savings in the US is by households in the top 10% of the income distribution, and three-quarters is by those in the richest 20%.

Excess savings are defined as extra savings on top of what households would have put aside had coronavirus not occurred and their behaviour been the same as in 2019.

Earlier this month, JPMorgan strategist Karen Ward said the large build-up in consumer spending could lead to stronger-than-expected inflation, which could in turn cause volatility in stock markets.

"The US consumer is generally not known for its reserve and thriftiness at the best of times," she said.

Ward said she thought it was likely that inflation averaged 3% over the next decade. Core personal consumption expenditure inflation, the Federal Reserve's preferred measure, stood at an annualized 1.4% in February.