The annual growth rate of households’ gross disposable income equalled 3.8% in the second quarter of 2007, compared with 4.3% in the previous quarter. The annual growth rate of gross saving of households decreased to 7.5%, after 11.4% previously, and their gross saving rate in the last four quarters equalled 14.1%. The annual growth rate of financing of households decreased to 7.4% in the second quarter, from 8.0% in the previous quarter, and the annual growth rate of their financial investment remained unchanged at 4.0%.2
The annual growth rate of gross fixed capital formation of non-financial corporations in the euro area amounted to 9.3% in the second quarter of 2007, compared with 11.1% in the previous quarter. The annual growth rate of financing of non-financial corporations increased to 5.1% in the second quarter, from 4.9% in the previous quarter and the annual growth rate of their financial investment remained broadly unchanged at 6.2%.
Euro area
In the second quarter of 2007, the annual growth rate of euro area net disposable income decreased to 5.0% from 5.6% in the previous quarter. The growth of euro area disposable income continued to accrue mainly to households and government. Euro area net saving continued to grow at a high annual rate (28.2%), but somewhat less than in the previous quarter (33.5%). While household and government savings continued to grow strongly, the contribution of corporations to the overall saving growth moderated. The decrease in the annual growth of gross fixed capital formation (7.4%), compared to the previous quarter (11.1%), was due to a lower investment growth by all sectors. The growth rate of total gross capital formation in the second quarter decreased as well (to 7.7%, from 9.1%). These developments were reflected in a growing current account surplus of the euro area with the rest of the world, or a negative foreign saving.
Households
The annual growth rate of households’ gross disposable income decreased to 3.8% in the second quarter of 2007, from 4.3% in the previous quarter. This deceleration was mainly driven by a decrease in the annual growth rate of compensation of employees, to 3.9%, from 4.5% in the previous quarter, and by a higher increase of households’ tax payments; the annual growth rate of households’ taxes on income and wealth increased to 6.6% from 4.6% previously.
The annual growth rate of households’ consumption expenditure (3.1%) was lower than that of their disposable income and hence the four-quarter average household gross saving rate increased, to 14.1%. The net lending of households increased only slightly as the increase in households’ saving was almost matched by the increase in households’ non-financial investment. Yet, the growth rate of their gross fixed capital formation decreased to 6.9%, from 11.1% previously.
The annual growth rate of financing of households via the incurrence of loans in the euro area decreased to 7.6% in the second quarter, from 8.1% in the previous quarter. This coincided with an unchanged growth of their financial investment of 4.0% per year.
Turning to the components of households' financial investment, the annual growth rate of their holdings of currency and deposits increased to 5.6% in the second quarter from 5.4% the previous quarter. The annual growth rate of their investment in debt securities decreased to 4.1%, from 5.4% previously. The growth rate of their investment in shares and other equity recovered somewhat (0.3%, after -0.1%). Specifically, the annual growth rate of their investment in unquoted shares and other equity was a bit higher and their annual sales of mutual fund shares were a bit lower than in the previous quarter. Yet, households became net sellers of quoted shares. The annual growth rate of their additions to life insurance and pension fund reserves remained broadly unchanged at 5.7%.
All in all, the annual growth rate of households’ net financial wealth increased to 6.6%, from 5.5% in the previous quarter, as households benefited from increased holding gains on financial assets, in particular quoted shares and mutual fund shares.
Non-financial corporations
The net entrepreneurial income of non-financial corporations4 grew at an annual rate of 8.0% in the second quarter of 2007, after 4.8% in the previous quarter. This increase of the growth rate can be largely explained by a higher increase in their property income receivable, which includes the profits of foreign subsidiaries.
The annual growth rate of gross fixed capital formation of non-financial corporations decreased to 9.3% in the second quarter of 2007 after 11.1% in the previous quarter, whereas the annual growth rate of total gross non-financial investment increased to 9.5% from 7.4% as inventories were less reduced than a year ago. At the same time, saving (“retained earnings”) of these corporations decreased and thus their net borrowing increased.
In the second quarter of 2007, the annual growth rate of financing by non-financial corporations increased to 5.1%, after 4.9% previously. The growth rate of their loan financing was unchanged at 10.3%, while the annual growth rate of their issuance of debt securities increased to 8.5%, from 6.5%. The annual growth rate of their equity financing, via the issuance of shares and other equity, increased to 2.1%, from 1.9% previously.
As regards the financial investment of non-financial corporations, the annual growth rate of their investment in currency and deposits decreased to 12.8%, from 13.8% previously. The growth rate of their investment in shares and other equity increased from 3.0% to 3.3%.
Insurance corporations and pension funds
The annual growth rate of insurance technical reserves, the major financing instrument of insurance corporations and pension funds, remained broadly stable, at 6.2% in the second quarter of 2007. The annual growth rate of the issuance of quoted shares by this sector increased to 1.9%, from 1.5% previously. The annual growth rate of their financial investment remained broadly stable at 6.2%. The growth rate of their investment in debt securities increased to 9.2%, from 7.9%, and that of their investment in shares and other equity decreased to 3.3%, from 4.2%.
