Consumer weakening in China, Europe too
Investors may be forced to rethink softlanding view

LONDON, July 31 Reuters Markets have high hopes for a soft landing for the economy, with bonds and equities rallying. Yet a sharp drawdown in the excess savings created by COVID19 could be a curve ball that slams into bullish sentiment.

The cash piles households built up during the lockdowns and government stimulus of 20202021 have long been touted by analysts and central bankers as a reason economies could avoid a deep recession.

But skyhigh inflation and rapidly rising interest rates in response are shrinking this savings cushion fast.

U.S. excess savings have fallen to around 500 billion from around 2.1 trillion in August 2021, the San Francisco Federal Reserve estimates.

In Europe, Deutsche Bank reckons excess savings in Sweden, struggling to contain a property slump, have dwindled. British households withdrew money from outright savings at a record pace in May, while the government39;s Office for Budget Responsibility forecasts a savings ratio of zero by yearend from almost 25 in 2020.

The end of savings won39;t cause a recession with jobs markets tight. Still, a spending downturn may hasten a typical economic pain spiral of falling business investment then high unemployment.

Government bonds will shine in a recession, investors said, while dwindling savings make consumer stocks and highyield credit assets to avoid.

Domestic consumption is a huge part of the…