The annual growth rate of gross fixed capital formation of non-financial corporations in the euro area decreased to -5.5% in the fourth quarter of 2008, from 5.4% in the previous quarter. The annual rate of growth of net entrepreneurial income of non-financial corporations declined to -12.9% in the fourth quarter, compared with a growth rate of -2.4% the previous quarter. The annual growth rate of financing of non-financial corporations was 3.6% in the fourth quarter, compared with 3.9% previously, and the annual growth rate of their financial investment was 3.9% in the fourth quarter, compared with 4.2% previously.
Total euro area economy
The annual growth rate of euro area net disposable income has declined to -0.4% in the fourth quarter of 2008 as compared to a positive growth of 3.0% in the previous quarter. This negative growth rate in net disposable income is mainly due to shrinking net disposable income of financial corporations and general government that were not compensated by the positive growth rate in the household sector. The decrease in the annual growth of gross fixed capital formation (-3.1%), compared to the previous quarter (+3.4%), was mainly due to negative investment growth by non-financial corporations and households. The growth rate of gross capital formation3 decreased to - 1.3% in the fourth quarter, compared to 4.4% in the previous quarter. This negative investment growth coincided with a decline in the annual growth rate of euro area net saving to -24.9%, from -10.9% in the previous quarter as decreases in net saving of the government in particular exceeded increases in households’ saving and in the deficit on the current account of the euro area balance of payments, that is foreign saving.
Households
The households’ adjusted gross disposable income increased by 2.5% in the fourth quarter of 2008, compared to 4.7% in the previous quarter. As usual, this increase was mainly driven by a growth in the compensation of employees (increased 3.0% in the fourth quarter of 2008, compared with 4.4% in the previous quarter.
The annual growth rate of households’ consumption expenditure (1.4%) was below the annual growth rate of their disposable income, which led to a continued high growth of households’ saving, by 9.4% (after 9.3% previously). The annual rate of change of gross fixed capital formation of households declined to -5.5% in the fourth quarter, down from -0.3% in the previous quarter. The four-quarter moving average households’ gross saving rate increased slightly to 14.2% (from 13.8% in the corresponding quarter of 2007). The annual growth rate of household sector's net lending, in contrast to its financial wealth, increased slightly to 2.2% in the fourth quarter of 2008, from 2.0% in the previous quarter.
The annual growth rate of financing of households via the incurrence of loans decreased to 3.6% in the fourth quarter of 2008, from 4.7% in the third quarter. This coincided with a decline in the annual growth of their gross non-financial investment to -3.2%, from -0.4% previously and of their financial investment to 2.4%, from 2.7%.
Turning to the components of households' financial investment, the annual growth rate of their investment in currency and deposits increased to 7.1% in the fourth quarter of 2008, from 6.3% in the previous quarter. The annual growth rate of their investment in debt securities decreased to 2.2%, from 6.7% previously. The growth rate of household’s investment in shares and other equity decreased to -3.1% in the fourth quarter, down from -2.8% previously. This decline was driven by higher net sales of mutual fund shares and quoted shares compared to the previous quarters. The annual growth rate of their additions to life insurance and pension fund reserves decreased to 3.6%, from 4.3% in the previous quarter.
Developments in the households’ financial balance sheet were dominated by valuation changes of their financial assets. Households’ net financial wealth decreased further by 13.9%, from an annual growth rate of -9.7% in the previous quarter. This decline is mainly due to valuation losses, notably the market value of households’ holdings of shares and other equity decreased by 31.6% in 2008.
Non-financial corporations
The annual growth rate of net entrepreneurial income of non-financial corporations declined to -12.9% in the fourth quarter of 2008, from -2.4% in the previous quarter. This corresponds with a decline of net value added generated by non-financial corporations of -0.7%, after an increase of 3.2% in the previous quarter, and with a continued positive growth rate of compensation of employees payable and of interest and rent payable by this sector.
Gross fixed capital formation of non-financial corporations decreased by 5.5% in the fourth quarter of 2008, after increasing by 5.4% in the previous quarter. The annual growth rate of total gross non-financial investment declined to -3.3%, compared with 7.0% in the previous quarter. Non-financial corporations’ net non-financial investment is predominantly financed by net borrowing, which decreased slightly in the fourth quarter.
In the fourth quarter of 2008, the annual growth rate of financing by non-financial corporations decreased to 3.6%, from 3.9% previously. The growth rate of their loan financing amounted to 8.1%, compared with 9.3% previously. The annual growth rate of their issuance of debt securities increased to 5.7%, from 5.1%. The annual growth rate of their equity financing, via the issuance of quoted and unquoted shares and other equity, increased slightly to 1.7%, from 1.5% in the previous quarter.
Financial investment growth of non-financial corporations moderated to 3.9% after 4.2% in the previous quarter, while the annual growth rate of their investment in currency and deposits decreased to 2.0%, from 5.8% previously. The growth rate of loans granted increased to 13.5% in the fourth quarter of 2008, after 11.0% previously. The growth rate of their investment in shares and other equity increased to 4.9%, from 4.4% previously.
The outstanding amounts of assets and liabilities in the financial balance sheet of nonfinancial corporations declined in the fourth quarter of 2008, since the market value of both debt securities and shares and other equity (held as well as issued) decreased. The annual growth rate of financial assets declined to -10.5% in the fourth quarter from a decline of - 5.0% previously. The annual growth rate of financing declined to -11.6%, from -7.0% in the previous quarter.
Insurance corporations and pension funds
The annual growth rate of insurance technical reserves, the major financing instrument of insurance corporations and pension funds, decreased to 3.8% in the fourth quarter of 2008, from 4.6% previously. The annual growth rate of the issuance of quoted shares increased to 0.8% from 0.2% previously. The annual growth rate of their financial investment increased to 4.6% from 4.0% previously. The growth rate of their investment in debt securities amounted to 5.1%, from 5.9% previously, while that of their investment in shares and other equity amounted to 2.7%, from 3.0% previously.
The outstanding amounts of assets and liabilities in the financial balance sheet of insurance corporations and pension funds declined somewhat as the market value of shares and other equity held and issued by them both declined. In particular, the market value of quoted shares held declined by 39.8% (after 29.1% previously) and that of mutual fund shares held declined by 10.7% (after an annual decline by 6.3 % in the previous quarter).
