The annual growth rate of gross fixed capital formation of non-financial corporations in the euro area decreased to 4.9% in the third quarter of 2008, from 6.2% in the previous quarter. The annual rate of growth net entrepreneurial income of non-financial corporations declined to -3.3% in the third quarter, after growing at a rate of 1.3% the previous quarter. The annual growth rate of financing of non-financial corporations was 3.8% in the third quarter, compared with 4.1% previously, and the annual growth rate of their financial investment was 4.1% in the third quarter, compared with 4.4% previously.
Total euro area economy
The annual growth rate of euro area net disposable income has fallen since the first quarter of 2007, equalling 2.5% in the third quarter of 2008. It has continued to accrue mainly to households, while the growth rate of government disposable income turned negative. The annual growth rate of euro area net saving declined to -14.1% due to decreased savings of non-financial corporations and government. The decrease in the annual growth of gross fixed capital formation (2.8%), compared to the previous quarter (4.7%), was mainly due to lower investment growth by non-financial corporations and households; the latter turned negative. The growth rate of gross capital formation also decreased in the third quarter (to 3.9%, from 5.5%) and was mainly financed by foreign saving.
Households
The annual growth rate of households’ gross disposable income increased to 4.5% in the third quarter of 2008, from 4.1% in the previous quarter. This increase was driven by a declining growth of taxes and net social contributions payable, as the annual growth rate of the compensation of employees decreased to 4.5% from 4.8% in the previous quarter. The annual growth rate of households’ consumption expenditure (4.0%) was below that of their disposable income, which led to a higher increase in household saving, growing 9.3% after 5.2% previously. The annual rate of change of gross fixed capital formation of households declined to -1.4% in the third quarter, from 0.6% in the previous quarter. The four-quarter moving average households’ gross saving rate increased slightly to 14.0% (from 13.9% in the corresponding quarter of 2007). The annual growth rate of financing of households via the incurrence of loans decreased to 4.5% in the third quarter, from 5.3% in the previous quarter. This coincided with a decline in the annual growth of their non-financial investment to -1.5%, from 0.4% previously and of their financial investment to 2.9%, from 3.1%. Turning to the components of households' financial investment, the annual growth rate of their investment in currency and deposits remained unchanged at 6.4%. The annual growth rate of their investment in debt securities decreased to 7.0%, from 7.7% previously. The growth rate of household’s investment in shares and other equity decreased to -2.5% in the third quarter, down from -1.8% 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 4.5%, from 4.8% 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 by 10.3%, after having decreased by 8.2% in the previous quarter. This decrease is mainly due to valuation losses on the market value of holdings of shares and other equity, which decreased by 24.8% from the third quarter of 2007 to the third quarter of 2008 (from EUR 5,376 billion to EUR 4,044 billion).
Non-financial corporations
The annual growth rate of net entrepreneurial income of non-financial corporations declined to -3.3% in the third quarter of 2008, from 1.3% in the previous quarter. This follows a weaker growth of net value added generated by non-financial corporations (2.9%, after 4.7% previously) and an increase in the growth rate of compensation of employees payable and of interest and rent payable by this sector. The annual growth rate of gross fixed capital formation of non-financial corporations decreased to 4.9% in the third quarter of 2008, after 6.2% in the previous quarter. The annual growth rate of total gross non-financial investment remained higher at 6.7% (being 7.4% in the previous quarter). The difference in growth rates indicates a continued accumulation of inventories. With non-financial corporations’ saving declining, their non-financial investment was financed almost completely by a continued net borrowing. In the third quarter of 2008, the annual growth rate of financing by non-financial corporations decreased to 3.8%, from 4.1% previously. The growth rate of their loan financing decreased to 8.7% from 9.6%, while the annual growth rate of their issuance of debt securities increased to 4.4%, from 1.6%. The annual growth rate of their equity financing, via the issuance of quoted and unquoted shares and other equity, decreased to 1.4%, from 1.5%. Financial investment growth of non-financial corporations moderated to 4.1% after 4.4%, while the annual growth rate of their investment in currency and deposits increased to 5.8%, from 5.2% previously. The growth rate of their investment in shares and other equity was broadly unchanged at 4.9%. The outstanding amounts of assets and liabilities in the financial balance sheet of nonfinancial corporations declined in the third quarter of 2008, since the market value of both debt securities and shares and other equity (held as well as issued) decreased.
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 5.0% in the third quarter of 2008, from 5.3% previously. The annual growth rate of the issuance of quoted shares decreased to 0.2%, from 0.4% previously. The annual growth rate of their financial investment remained stable at 4.5%. The growth rate of their investment in debt securities increased to 6.2%, from 5.7% previously, while that of their investment in shares and other equity increased to 3.2%, after 3.0% previously. The outstanding amounts of assets and liabilities in the financial balance sheet of insurance corporations and pension funds declined marginally 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 27.2% (after 21.2% previously) and that of mutual fund shares held declined by 6.5% (after 5.1 % in the previous quarter).
