EU Economy
Household saving rate as ratio of disposable income down to 13.4% in Eurozone; Business investment rate as ratio of value added at 20.8%
By Finfacts Team
May 3, 2011 - 3:49 PM

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In the fourth quarter of 2010, in both the Eurozone (EA16) and the EU27, the household saving rate continued to decrease, while the household investment rate remained almost stable at low levels. In the Eurozone, household disposable income fell by 0.1% in real terms, after an increase of 0.1% in the previous quarter. Meanwhile, the business investment rate and the profit share were almost unchanged compared with the previous quarter.

These data come from a detailed set of seasonally adjusted1 quarterly European sector accounts released by Eurostat, the statistics office of the European Union, and the European Central Bank (ECB).

The gross saving rate of households is defined as gross saving divided by gross disposable income, with the latter being adjusted for the change in the net equity of households in pension funds reserves. Gross saving is the part of the gross disposable income which is not spent as final consumption expenditure. Therefore, saving rate increases when gross disposable income grows at a higher rate than final consumption expenditure.

Household saving rate decreasing further in both zones: In the fourth quarter of 2010, the gross saving rate of households was 11.3% in the EU27, compared with 11.6% in the third quarter of 2010. In the Eurozone, the household saving rate was 13.4% in the fourth quarter of 2010, compared with 13.6% in the previous quarter. The saving rates for the fourth quarter of 2010 were the lowest since the first quarter of 2006 in the Eurozone and since the third quarter of 2008 in the EU27.

Household real disposable income and real final consumption nearly stable in the Eurozone: In the Eurozone, the drop in the household saving rate was due to real disposable income6 decreasing slightly (-0.1%), while real final consumption expenditure recorded a small increase (+0.1%). Real disposable income decreased because the growth of nominal disposable income (+0.5%) was lower than the growth of prices of goods and services consumed by households (+0.6%).

The increase in household nominal disposable income (+0.5%) was mainly due to compensation of employees (wages and social contributions) which accounted for +0.4 percentage points (pp), while net property income had a downward impact (-0.2pp).

Household investment rate still at low levels in both zones:In the EU27, the gross investment rate of householdswas 8.0% in the fourth quarter of 2010, compared with 8.1% in the previous quarter. In the Eurozone, the household investment rate was 8.8% in the fourth quarter of 2010, compared with 8.9% in the previous quarter.

The US personal saving as a percentage of disposable personal income was 5.5% in March 2011, the same as in February.

Business Investment

In the fourth quarter of 2010, in both the Eurozone (EA16) and the EU27, the business investment rate and the profit share were almost unchanged compared with the previous quarter.

The gross investment rate of non-financial corporations is defined as gross fixed capital formation divided by gross value added. This ratio relates the investment of non-financial businesses in fixed assets (buildings, machinery etc.) to the value added created during the production process.

In the Eurozone, the business profit share remained nearly stable, as value added and wage costs increased at a similar pace.

Business investment rate still at low levels in both zones: In the fourth quarter of 2010, the gross investment rateof non-financial corporations was 20.3% in the EU274, compared with 20.2% in the third quarter of 2010.

In the Eurozone, the investment rate was 20.8% in the fourth quarter of 2010, the same as in the previous quarter, as investment grew, in nominal terms, at a similar pace (+1.4%) to gross value added (+1.2%). Stocks of materials, supplies and finished goods decreased further.

Business profit share stabilising in both zones: In the EU27, the gross profit share6 of non-financial corporations was 37.9% in the fourth quarter of 2010, the same as in the previous quarter.

In the Eurozone, the profit share was 38.2% in the fourth quarter of 2010, compared with 38.1% in the third quarter of 2010. This limited increase was due to value added increasing slightly faster (+1.2%) than compensation of employees (wages and social contributions) plus taxes less subsidies on production (+1.1%).

The European Union (EU27) consists of 27 Member States: Belgium, Bulgaria, the Czech Republic, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia, Finland, Sweden and the United Kingdom plus the European Central Bank and the EU institutions.

The Eurozone (EA16) consisted of 16 Member States until 31 December 2010: Belgium, Germany, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland plus the European Central Bank. From 1 January 2011, the Eurozone (EA17) also includes Estonia. Data for EA17 will be published as of 29 July 2011 (first release of sector accounts for the first quarter of 2011).

The profit share of non-financial corporations is defined as gross operating surplus divided by gross value added. This profitability-type indicator shows the share of the value added created during the production process remunerating capital. It is the complement of the share of wage costs (plus taxes less subsidies on production) in value added.


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