ANNUAL REPORT 2008 - Polymer Bank Notes of the World

Chart 20 Profit ratios of listed euro areanon-financial corporations(quarterly data; percentages)14121086420-2-4net income to sales (left-hand scale)operating income to sales (left-hand scale)operating expenses to sales (right-hand scale)-62002 2003 2004 2005 2006 20072008100Sources: Thomson Financial Datastream and ECB calculations.Notes: The calculation is based on aggregated quarterly financialstatements of listed non-financial corporations in the euro area.Outliers have been removed from the sample. Compared withthe operating income, which is defined as sales minus operatingexpenses, the net income refers to operating and non-operatingincome after taxation and extraordinary items.9896949290888684Chart 21 Non-financial corporations’financing gap and its main components(as a percentage of GDP; four-quarter moving average)15131197531-1-3-5financing gap (left-hand scale)non-financial investment 1) (right-hand scale)corporate savings 2) (right-hand scale)2000 2001 2002 2003 200452005 2006 2007 2008Source: ECB.1) Includes inventories and accumulation of non-financial assets.2) Includes net capital transfers.1514131211109876why MFI loan growth, while decelerating,continued to be relatively robust, at least up toNovember. Corporate developments in the euroarea remained relatively resilient in the first partof 2008, thereby sustaining loan demand forfinancing activities. Another contributing factormay have been the drawing-down of creditfacilities negotiated in more benign times. Thedemand for bank loans could have also beensupported by a substitution effect stemming fromhampered capital market funding, a reductionin internally generated funds and a contractionin trade credit. Furthermore, obstacles to theprompt adjustment of productive capacity andthe implementation of cost-cutting programmesoften inhibit corporate spending from adjustingin the short term. This may partly explain theresilience of credit demand in the second half ofthe year, despite weakening growth prospects.Growth in market-based financing (through bothdebt and equity) slowed down, in parallel to thesurge in the cost of these sources of funding.The annual growth rate of debt securities issuedby non-financial corporations declined fromaround 9.0% at the beginning of the year to6.6% in December 2008. The issuance of shorttermdebt securities, which picked up after theonset of the financial turmoil in the summerof 2007, also progressively moderated. Thispattern is confirmed by short-term developmentsin seasonally adjusted data. Adding to the risein corporate spreads, these developments mayfurther reflect the decline in M&A activity. Theannual growth rate of quoted shares issued bynon-financial corporations fell considerablythroughout 2008, reaching zero in December.The negligible contribution of the net issuanceof quoted shares to the net financing of theeuro area corporate sector is attributable to thesoaring real cost of equity and to highly volatileequity market conditions.The growth of external financing to non-financialcorporations, albeit moderating, may be relatedto a wider financing gap or net borrowing –52 ECBAnnual Report2008