The annual growth rate of gross fixed capital formation of non-financial corporations in the euro area amounted to 4.5% in the second quarter of 2008, compared with 5.3% in the previous quarter. The annual growth rate of financing of non-financial corporations decreased to 3.8% in the second quarter, from 4.4% previously, and the annual growth rate of their financial investment decreased to 4.1% in the second quarter, from 5.1% previously.
Euro area
The growth of euro area disposable income (3.1% in the second quarter of 2008) continued to accrue mainly to households. The annual growth rate of euro area net saving declined to -11.8% due to decreased savings of non-financial corporations and government. The decrease in the annual growth of gross fixed capital formation (3.8%), compared to the previous quarter (4.4%), was due to lower investment growth by households and non-financial corporations. The growth rate of total gross capital formation also decreased in the second quarter (to 4.7%, from 4.8%).
Households
The annual growth rate of households’ gross disposable income increased to 4.1% in the second quarter of 2008, from 3.8% in the previous quarter. This increase was driven by a declining growth in taxes payable and an increase in net property income and other transfers. The annual growth rate of the compensation of employees decreased to 4.8% from 5.0% in the previous quarter.
The annual growth rate of households’ consumption expenditure (3.9%) was below that of their disposable income and led to an increase in household saving. The four-quarter average households’ gross saving rate increased slightly to 13.8% (from 13.7% in the previous quarter) and stood at the same level as in the second quarter of 2007. The growth rate of their non-financial investment decreased to -1.0%, from 1.6% previously.
The annual growth rate of financing of households via the incurrence of loans decreased to 5.3% in the second quarter from 6.0% in the previous quarter. This coincided with a decline in the annual growth of their financial investment to 3.0%, from 3.3%.
Turning to the components of households' financial investment, the annual growth rate of their investment in currency and deposits remained unchanged at 6.3%. The annual growth rate of their investment in debt securities increased to 7.8%, from 5.6% previously. The growth rate of household’s investment in shares and other equity decreased to -2.1% in the second quarter, down from -1.5% previously.
Specifically, the decline was driven by stronger net sales of quoted shares and mutual fund shares compared to the previous quarters. The annual growth rate of households’ investment in unquoted shares and other equity remained positive, increasing to 1.5% from 0.9% in the previous quarter. The annual growth rate of their additions to life insurance and pension fund reserves decreased to 4.9%, from 5.2% in the previous quarter.
Developments in households’ financial balance sheet were dominated by valuation changes; the financial assets held by households declined in the second quarter of 2008 while households continued their financial investments. Households’ net financial wealth decreased by 7.4%, after having decreased by 4.9% in the previous quarter. This decrease is mainly due to holding losses on the market value of their shares and other equity, which decreased by 20.2% from the second quarter of 2007 to the second quarter of 2008 (from EUR 5,583 billion to EUR 4,453 billion).
Non-financial corporations
The net entrepreneurial income of non-financial corporations declined at an annual rate of -0.2% in the second quarter of 2008, after -0.6% in the previous quarter, as the weaker growth of net value added by non-financial corporations (3.8%, after 4.1% previously) was broadly offset by the slower growth in the compensation of employees
payable by this sector.
The annual growth rate of gross fixed capital formation of non-financial corporations decreased to 4.5% in the second quarter of 2008, after 5.3% in the previous quarter. The annual growth rate of total gross non-financial investment, which includes inventories increased more strongly (6.7%), up from the previous quarter. With non-financial corporations’ saving declining, this increase in non-financial investment was financed to a lesser extent through internal financing (in particular via “retained earnings”) and thus the net borrowing of non-financial corporations increased.
In the second quarter of 2008, the annual growth rate of financing by non-financial corporations decreased to 3.8%, from 4.4% previously. The growth rate of their loan financing decreased to 9.5% from 10.6%, while the annual growth rate of their issuance of debt securities decreased to 1.5%, from 5.2%. The annual growth rate of their equity financing, via the issuance of shares and other equity, decreased to 1.3%, from 1.6%.
As regards the financial investment of non-financial corporations, the annual growth rate of their investment in currency and deposits decreased to 5.4%, from 7.3% previously. The growth rate of their investment in shares and other equity was broadly unchanged at 4.6%.
The financial balance sheet of non-financial corporations declined while their financing and financial investment increased as the market value of both shares and other equity held as well as the outstanding amount issued by non-financial corporations declined.
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 5.3% in the second quarter of 2008, from 5.7% previously. The annual growth rate of the issuance of quoted shares increased to 0.4%, from 0.2% previously. The annual growth rate of their financial investment decreased to 4.4%, from 4.9% in the previous quarter. The growth rate of their investment in debt securities decreased to 5.7%, after 6.0% previously, while that of their investment in shares and other equity decreased to 2.9%, after 3.6% previously.
The financial balance sheet of insurance corporations and pension funds declined marginally while their financing and financial investment increased as the market value of both shares and other equity held as well as the outstanding amount issued by insurance corporations and pension funds declined. In particular the market value of quoted shares held declined by 21.0 % and that of mutual fund shares declined by 5.1% between the second quarter 2007 and the second quarter of 2008.
