ANNUAL REPORT 2008 - Polymer Bank Notes of the World

calculated as the balance between gross savingand gross capital formation (see Chart 21). Thefinancing gap experienced by non-financialcorporations in the euro area in 2007 and up tothe third quarter of 2008 resulted from decreasesin corporate saving and, to a lesser extent,increases in real investment in relation to GDP.During the first part of 2008 falling corporatesaving was mainly the result of rising interestpayments.A FURTHER RISE IN CORPORATE DEBTWith regard to developments in the balancesheet position of non-financial corporationsin the euro area, the protracted rise in debtfinancing led to a further increase in debt ratios(see Chart 22). In the fourth quarter of 2008the debt-to-GDP and debt-to-gross operatingsurplus ratios rose to 80.5% and 403%respectively. After a period of consolidationbetween 2002 and 2004, the debt ratios ofnon-financial corporations have continuouslyincreased over the last four years. The ratioof debt to financial assets of non-financialcorporations edged upwards in most of 2008,Chart 22 Debt ratios of non-financialcorporations(percentages)410390370350330310290ratio of debt to gross operating surplus (left-hand scale)ratio of debt to GDP (right-hand scale)270501999 2000 2001 2002 2003 2004 2005 2006 2007 2008Sources: ECB, Eurostat and ECB calculations.Notes: Debt is reported on the basis of the quarterly Europeansector accounts. It includes loans, debt securities issued andpension fund reserves. Included is information up to the fourthquarter of 2008.85807570656055interrupting the declining trend observed sincethe first quarter of 2003. The combination ofhigher debt and rising interest rates translatedinto a significant increase in the net interestburdens of non-financial corporations in thecourse of 2008.2.3 PRICE AND COST DEVELOPMENTSOverall HICP inflation averaged 3.3% in 2008,which was a sharp increase by comparisonwith previous years – when annual inflationrates clustered around 2.2% – and well abovethe ECB’s definition of price stability overthe medium term (see Table 1). The increasefor 2008 as a whole resulted from two sharplydistinct patterns in HICP developments over thecourse of the year: starting from an already highlevel at the end of 2007 of 3.1%, annual inflationrates grew further to reach a peak of 4.0% inJune and July 2008, but receded thereafter, at arapid pace in the last few months of the year, tostand at 1.6% in December.The sharply contrasting overall HICP inflationdevelopments in 2008 were dominated bypatterns in global commodity prices (energyprices, as well as the prices of other commodities,including food) (see Chart 23). In the first partof the year, booming world demand continuedto push up commodity prices, which reachedextremely high levels, while the rapid slowdownin activity in the second part of the year, whichdeveloped into a pronounced contraction by theyear-end, abruptly pushed them down again.Most prominently, oil prices continued to surgein the first half of 2008, following rapid increasesin 2007, and reached a historical high in earlyJuly against the background of tight supply anddemand conditions. During the second half ofthe year oil prices fell precipitously, ending atlevels well below those seen at the beginning ofthe year. In a parallel development, processedfood price inflation, which began from alreadyelevated levels at the end of 2007, increasedsharply during the first part of the year as a resultof a worldwide tightening in food commodityinventories, before receding rapidly towardsECBAnnual Report200853