Quarterly Bulletin Q3 2013

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66 Developments in the International Quarterly Bulletin 03 / July 13 and Euro Area Economy Box B: Comparing household saving patterns in the euro area periphery against those in the rest of the euro area By David Purdue The basis for this analysis is the financial accounts relation: 4 Savings = Transactions in Financial Assets – Transactions in Financial Liabilities + Gross Fixed Capital Formation + (Statistical discrepancy and Other) The relation shows the three “forms of saving”. Firstly, a household can save through acquiring financial assets (such as deposits, securities, equities) thereby foregoing current consumption for future consumption. Secondly, households can invest in the real economy which would increase gross fixed capital formation. This is, for the most part, made up of the acquisition of property. Finally, households can choose to pay down debt accumulated in previous periods. Positive values for financial liabilities transactions (which are shown with an inverse sign in Chart 2) indicate loan advancement to households and contribute negatively to savings. However, as the sector looks to deleverage, financial liabilities transactions will decrease and can even turn negative with savings increasing as a result. Box B Chart 2: Euro Area Periphery - Saving Four Quarter Accumulated Sum Box B Chart 3: Rest of the Euro Area - Saving Four Quarter Accumulated Sum 1000 € bn € bn 700 1000 € bn € bn 700 800 600 800 600 600 500 600 500 400 400 400 400 200 300 200 300 0 200 0 200 -200 100 -200 100 -400 0 -400 0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Financial Liabilities Transactions Financial Assets Transactions Gross Fixed Capital Formation Statistical Discrepancy and Other Savings (RHS) Financial Liabilities Transactions Financial Assets Transactions Gross Fixed Capital Formation Statistical Discrepancy and Other Savings (RHS) Source: ECB SDW Website. Source: ECB SDW Website. From the start of 2007 to the end of 2009, a rise in savings is evident in both areas (Chart 2). The increases stem from severe drops in financial liabilities transactions of €238 billion (periphery) and €146 billion (rest of the euro area) and occurred despite lower financial asset transactions and gross fixed capital formation. On a four quarter accumulated sum basis, the periphery savings increased by €53 billion while the rest of the euro area component increased by €71 billion. Although the rest of the euro area savings increase is larger in absolute terms, the changes observed in the periphery are larger in percentage terms for all components during the period. The periphery saw declines of 95.2 per cent in financial liabilities transactions, 62.6 per cent in financial assets transactions and 24.2 per cent in gross fixed capital formation. By contrast, the corresponding declines in the rest of the euro area were 57.6 per cent, 0.3 per cent and 6.4 per cent, respectively. 4 The accounting items net capital transfers, changes in inventories and acquisitions less disposals of valuables and acquisitions less disposals of non-produced non-financial assets are aggregated in “Other”. The statistical discrepancy relates to the difference between calculating savings from a financial accounts perspective (as we are here) or from a nonfinancial perspective i.e. savings equals disposable income minus consumption.
Developments in the International and Euro Area Economy Quarterly Bulletin 03 / July 13 67 Box B: Comparing household saving patterns in the euro area periphery against those in the rest of the euro area By David Purdue Since 2010, the periphery has seen a fall in savings while savings in the rest of the euro area have stabilised. Indeed, 87.5 per cent of the fall in euro area household savings is from periphery households (€105 billion of €122 billion). The composition of changes in household savings is also different across the two regions during this period. The fall in periphery savings has been driven by declines in financial assets transactions of €101 billion – financial assets transactions were slightly negative for 2012 - and in gross fixed capital formation of €25 billion. Financial liabilities transactions turned negative for the periphery in all four quarters of 2012 indicating sustained deleveraging efforts by households. For 2012, the paying down of debt by households is outstripping loan advancement by €48 billion in the periphery, which increases household savings. By contrast, financial assets transactions stood at €319 billion in the fourth quarter of 2012 for the rest of the euro area despite declines since the start of 2010 5 . Gross fixed capital formation has increased by €29 billion since 2010 on a four quarter accumulated sum basis while there have been positive financial liabilities transactions of €110 billion indicating net loan advancement. To summarise, given the size and compositional differences in household savings patterns observed since 2010, household savings in the two regions are currently being driven by different motives - one by debt repayment which is necessary from a household indebtedness perspective, the other by more traditional precautionary intentions. 5 The declines in financial assets transactions across the euro area could be explained by households tapping into their savings to cushion their consumption in a climate of subdued income growth. For more see ECB Monthly Bulletin February 2013. Section 3: Financial Markets Financial Sector Developments Market sentiment cooled somewhat during a volatile second quarter of 2013. Initially, the very positive sentiment of the first quarter of 2013 continued into April, despite some adverse economic data, as accommodative monetary policy from the major central banks supported sentiment. In early April, the Bank of Japan introduced substantial changes to its monetary policy operations, including the purchase of Japanese government bonds of around JPY 7 trillion per month, while the ECB lowered its key interest rate by 25 basis points to 0.50 per cent in May. However, as the quarter progressed, weaker-than-expected economic data from the euro area and China as well as questions relating to the tapering of the Federal Reserve’s asset purchasing programme saw market sentiment weaken. Early-quarter increases made by euro area equity markets were reversed in late May and June although global equity markets registered some gains overall. Yields on AAA-rated long-term government bonds in the euro area increased slightly, while yields in the stressed euro area government bond markets saw increased volatility as sentiment worsened in late May and June. Equity Markets Euro area equity markets were slightly lower in the second quarter of 2013, while global equity market indices saw some increase. Equity market developments were driven by diminishing domestic uncertainties and by low yields on alternative investments such as government and corporate bonds. The major central banks further eased their monetary stance during the quarter. Along with a search for yield, this buoyed equity markets generally in April and early-May, despite weak economic
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JULY 13 Q3 Central Bank Quarterly B
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Contents Section 1 Forecast Summary
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Section 1 Quarterly Bulletin 03 / J
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7 Comment Annual National Accounts
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9 The Domestic Economy Overview n A
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The Domestic Economy Quarterly Bull
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The Domestic Economy Quarterly Bull
Page 17 and 18: The Domestic Economy Quarterly Bull
Page 33 and 34: 31 An Timpeallacht Gheilleagrach Le
Page 35 and 36: 33 Financing Developments in the Ir
Page 37 and 38: Financing Developments in the Irish
Page 55 and 56: 53 Developments in the Internationa
Page 57 and 58: Developments in the International a
Page 67: Developments in the International a
Page 73 and 74: 71 EU-IMF Financial Assistance Prog
Page 75 and 76: EU-IMF Financial Assistance Program
Page 77 and 78: EU-IMF Financial Assistance Program
Page 79 and 80: 77 Developments in EU Financial Ser
Page 81 and 82: Developments in EU Financial Servic
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Page 87 and 88: Analysis of Recent Monetary Operati
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Page 107 and 108: Statistical Appendix Quarterly Bull
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