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News : EU Economy Last Updated: Oct 29, 2010 - 5:05:05 AM

Eurozone household saving rate fell to 14.3% in Q2 2010; Ireland had a sharp rise in its household saving ratio to 12.3% in 2009
By Finfacts Team
Oct 28, 2010 - 3:49:39 PM

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Source: Eurostat

The Eurozone household saving rate fell to 14.3% in Q2 2010.  In Ireland, there was a sharp rise in the household saving ratio to 12.3% in 2009.

In the second quarter of 2010, in both the Eurozone (EA16) and the EU27, the seasonally adjusted household saving rate continued to decrease while the household investment rate recovered slightly. In the Eurozone, household disposable income fell by 0.3% in real terms.

The European  data come from a detailed set of quarterly European sector accounts released today by Eurostat, the statistics office of the European Union, and the European Central Bank(ECB). The Irish data was published today by the Central Statistics Office (CSO).

Household saving rate still decreasing in both zones

In the second quarter of 2010, the seasonally adjusted gross saving rate of households was 12.1% in the EU27, compared with 12.9% in the first quarter of 2010. In the Eurozone, the household saving rate was 14.3% in the second quarter of 2010, compared with 14.5% in the previous quarter.

Household real disposable income fell in the Eurozone

In the Eurozone, the fall in the household saving rate was due to real disposable income6 decreasing faster (-0.3%) than real final consumption expenditure (-0.1%). Real disposable income dropped because nominal disposable income increased more slowly (+0.5%) than the prices of goods and services consumed by households (+0.8%).

The increase (+0.5%) in household nominal disposable income was mainly due to compensation of employees (wages) and gross operating surplus (together with mixed income which accrues to self-employed households), which contributed +0.5 and +0.2 percentage points (pp) respectively. Taxes also had a small positive impact (+0.1 pp), while net social benefits had a negative impact (-0.2 pp).

Household investment rate recovered slightly in both zones

In the EU27, the gross investment rate of households7 was 8.1% in the second quarter of 2010, compared with 7.9% in the first quarter of 2010. In the Eurozone, the household investment rate was 8.9% in the second quarter of 2010, compared with 8.8% in the previous quarter.

In the Eurozone, the increase in household investment rate was due to gross fixed capital formation (investment, mostly in dwellings) growing faster in nominal terms (+1.4%) than nominal disposable income (+0.5%).

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.

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) consists of 16 Member States: Belgium, Germany, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland plus the European Central Bank.

Source: CSO

Sharp rise in Irish household saving ratio

Net savings of Irish households increased from €3.6bn in 2008 to over €11bn in 2009 - - the only sector to show an increase in savings over this period. The derived household net saving ratio, which expresses net savings as a percentage of net disposable income, increased from 3.9% in 2008 to 12.3% in 2009.

Financial corporations had net savings of €1.8bn in 2009 – down from €3.3bn in 2008 while the corresponding figures for non-financial corporations were €5.8bn and €9.7bn, respectively. The Government sector had a savings deficit of €14.4bn in 2009  - -  an increase of €9.9bn compared with the previous year’s deficit.

Other notable findings are:

  • While the net disposable income of households fell by €2.1bn, from €91.7bn in 2008 to €89.6bn in 2009, the €10bn decline in consumption by households down to €81bn in 2009 was far more pronounced.

  • In the period 2002 to 2008 household savings were not adequate to fund the household investment (mainly in property) undertaken during this period thereby necessitating recourse to borrowing. The sharp decline in capital investment by households between 2008 and 2009 resulted in the household sector providing net lending of €8.4bn to other sectors of the economy in 2009 in contrast to having to raise net borrowing of €5.6bn in 2008.

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