The effect of the COVID-19 pandemic on consumer savings and retail sales: Evidence from a postcommunist transition economy

Abstract

When coupled with strong external shocks such as COVID-19, the high levels of uncertainty that characterise fragile economies can have a strong impact on household consumption and saving behaviour. This paper analyses household consumption and saving behaviour in conjunction with COVID-19 in the context of a post-communist economy. Models and intervention analysis are used to identify the effect of catastrophic events such as the COVID-19 pandemic on two key macroeconomic measures for the Albanian economy. The findings show that the pandemic period caused a significant contraction of consumer spending and a significant increase in savings. Higher uncertainty appears to have been a key driver of such household behaviour. The effect on savings will endure in the long run, while retail trade is expected to recover. These findings call for a more astute use of fiscal and monetary policies to address the harmful emerging short-run effect of reduced household spending.