Euro area economic and financial developments by institutional sector - second quarter 2013

Frankfurt am Main, (PresseBox) - In the second quarter of 2013 the annual growth rate1 of household gross disposable income was broadly unchanged at 0.2% (first quarter: 0.1%, see Table 2). The annual growth rate of household consumption expenditure increased to 0.5% in the second quarter, compared with -0.3% in the first quarter. Reflecting these developments, the annual growth rate of household gross saving decreased to -1.4% in the second quarter, from 3.6% in the first quarter. The household gross saving rate2 was 13.0% in the second quarter of 2013, compared with 13.1% in the second quarter of 2012.

The annual growth rate of household financing was unchanged at 0.3% from the previous quarter, and that of financial investment was unchanged at 1.7%. Household net worth3 decreased at a slower annual rate (-0.1%) than in the previous quarter (-0.4%).

The annual growth rate of net entrepreneurial income of non-financial corporations increased to -0.2% in the second quarter of 2013, from -1.0% in the previous quarter (see Table 3). The annual growth rate of gross fixed capital formation of non-financial corporations increased to -2.7%, from -8.3% in the first quarter. The annual growth rate of financing of non-financial corporations decreased to 0.7% from 1.0% the previous quarter. Non-financial corporations' financial investment grew at a lower annual rate of 1.2% (first quarter 2013: 1.5%). Debt of households and non-financial corporations as a percentage of GDP stood at 64.9% (second quarter 2012: 65.6) and 103.0%, (second quarter 2012: 104.4) respectively (see Tables 2 and 3).4

Total euro area economy

Euro area net disposable income increased at an annual rate of 0.5% in the second quarter of 2013, compared with -0.3% in the first quarter (see Chart 1 and Table 1). The annual growth rate of euro area gross fixed capital formation increased to -3.2% (first quarter: - 6.9%), due to less negative contributions from non-financial corporations, households and governments (see Chart 2). The growth rate of gross capital formation increased to -3.5% in the second quarter, from -7.4% in the first quarter (see Chart 3). The continued decline in gross capital formation accompanied by broadly unchanged euro area savings led to a continued growth of net lending by the euro area to the rest of the world (corresponding to an increase in the current and capital account surplus).

Households

The annual growth rate of household gross disposable income was broadly unchanged, at 0.2% in the second quarter of 2013 (first quarter: 0.1% see Table 2). This resulted mainly from increases in compensation of employees, gross operating surplus and mixed income, which were only partly offset by the negative effect of increasing taxes (see also Chart 4).

The annual growth rate of household consumption expenditure increased to 0.5% in the second quarter, from -0.3% in the first quarter, while that of household gross saving decreased to -1.4% from 3.6%. The household gross saving rate2 was 13.0% in the second quarter of 2013, compared to 13.1% in the second quarter of 2012. The annual growth rate of gross fixed capital formation of households was -2.8% in the second quarter (first quarter 2013: -5.0%).

The annual growth rate of household gross non-financial investment was -3.9% in the second quarter of 2013, compared with -4.9% in the first quarter (see Chart 5). This continued decline was broadly matched by the decline in gross savings leading to a broadly stable net lending of households. The annual growth rate of financing of households was unchanged at 0.3% in the second quarter, while the rate of loan financing decreased to - 0.2% (first quarter 2013: 0.0%) (see Table 2).

The growth of household financial investment was unchanged at 1.7%. Among the components, the annual growth rate of holdings of currency and deposits decreased to 3.2% (first quarter: 3.4%), the annual growth rate of investment in debt securities was -10.0%, down from -9.6% in the first quarter, and that of investment in shares and other equity decreased to 1.6% (first quarter: 1.8%.) The annual growth rate of households' additions to life insurance and pension was unchanged at 2.6%.

Developments in household balance sheets reflected negative valuation changes of non-financial assets. In particular housing wealth declined, albeit at a slower rate of -3.1% (after -3.4 previously) (see Chart 6 and Table 2). This decline was almost completely offset by positive changes in the valuation of financial assets. The annual growth rate of the market value of household holdings of shares and other equity increased to 10.0% from 8.7% in the first quarter. Household net worth decreased at a slower annual rate (-0.1%) than in the previous quarter (-0.4%). The household debt ratio, defined here as the outstanding amount of loans as percentage of household gross disposable income, decreased to 97.8% in the second quarter of 2013, from 98.4% in the second quarter of 2012 (as a percentage of GDP, debt stood at 64.9%, see Table 2).

Non-financial corporations

Net entrepreneurial income5 of non-financial corporations decreased at a slower annual rat (-0.2%) than in the first quarter of 2013 (-1.0%) (see Chart 7 and Table 3). Net value added increased (0.7%) after decreasing in the previous quarter (-1.0%). The annual growth rate of gross fixed capital formation increased to -2.7% in the second quarter of 2013, from - 8.3% in the previous quarter. The annual growth rate of total gross non-financial investment, which includes inventories, increased to -3.2% from -10.5% (see Chart 8). Net lending (+)/net borrowing (-) of non-financial corporations as a percentage of gross value added increased to 1.1% in the second quarter of 2013, from -1.0% in the second quarter of 2012 (see Table 3).

The annual growth rate of financing of non-financial corporations decreased to 0.7% in the second quarter, from 1.0% in the first quarter. The annual growth rate of non-financial corporations' loan financing decreased to -0.7%, from -0.2% in the previous quarter. The growth of the issuance of debt securities decreased to 9.5% (first quarter: 11.1%). The nonfinancial corporation debt ratio, defined here as the outstanding amount of loans, debt securities and pension fund reserve liabilities as a percentage of GDP, decreased to 103.0%

in the second quarter of 2013, from 104.4% in the second quarter of 2012. The annual growth rate of equity financing, via the issuance of quoted and unquoted shares and other equity, was unchanged at 1.1%.

Financial investment of non-financial corporations increased at an annual rate of 1.2% in the second quarter of 2013 (first quarter: 1.5%). The annual growth rate of currency and deposits increased to 3.8% from 3.3%, and that of debt securities decreased to -10.8% from
-9.2%. The growth rate of loans granted decreased to -0.5% in the second quarter from 1.1% in the first quarter, and that of investment in shares and other equity decreased to 1.2% from 1.9%.

Insurance corporations and pension funds

The annual growth rate of insurance technical reserves, the major financing instrument of insurance corporations and pension funds, was unchanged in the second quarter of 2013 at 2.7%. The annual growth rate of the financial investment of insurance corporations and pension funds was also unchanged at 3.0%. The growth rate of investment in debt securities increased to 3.4% (from 3.2%), while the growth rate of investment in shares and other equity decreased to 3.6% (after 3.8%).

1 The euro area accounts are expressed in current prices and are not seasonally adjusted. The growth rates are presented as year-on-year percentage changes (see the notes).
2 The household saving rate is based on four-quarter cumulated sums of both saving and gross disposable income (adjusted for the change in the net equity of households in pension fund reserves).
3 Households' net worth consists of net financial assets and non-financial assets. Non-financial assets consist mainly of housing wealth (residential structures and land). They also include non-financial assets of unincorporated enterprises classified within the household sector.
4 The sum of the debt of the household sector and of the non-financial corporation sector (also referred to as "Private debt"), as a percentage of GDP is one of the headline indicators of the macroeconomic imbalance procedure (MIP). For non-financial corporations the definition of debt used by the MIP slightly differs from the definition applied here (financial derivatives are excluded and pension fund reserve liabilities are included). In both cases, trade credits are not included (see Table 3).
5 Net entrepreneurial income is broadly equivalent to current profits in business accounting (after the receipt and payment of interest and including the profits of foreign subsidiaries, but before the payment of income taxes and dividends).

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