Impact of Covid-19 crisis on non-financial corporation and household accounts
Data extracted in October 2020
Planned article update: February 2021.
Household saving rate at record high at 27.5% in the euro area and 26.5% in the EU. Household investment rate at record low at 7.9% in the euro area and 7.8% in the EU.
Year-over-year contraction of business profit share attenuated by the decrease of compensation of employees and the increase of subsidies in the euro area
This article provides a short analysis of key macroeconomic indicators of two institutional sectors of the economy: households and non-financial corporations. Its goal is to show the impact of the COVID-19 crisis on the European aggregates and the trends across countries during the second quarter of 2020, when the lockdown measures continued.
The article will initially analyse household gross saving and investment rates, gross disposable income and their components at European and national level. Afterwards, it will focus on non-financial corporation gross profit share, gross business investment rate, gross operating surplus and their components.
Finally, it will underline how the COVID-19 lockdown has affected the collection, compilation and dissemination of quarterly sector accounts data.
This article will be updated for as long as the crisis continues to affect the economy and new data arrive.
Household gross disposable income, saving and investment rates
Household saving rate at record high at 27.5% in the euro area and 26.5% in the EU-27 due to large decrease in household consumption expenditure
The household saving rate at EU-27 and euro area (EA-19) levels had its highest year-over-year increase (2020Q2 vs 2019Q2, non-seasonally adjusted data) since the beginning of the time series, at +10.8 and + 10.6 percentage points (pp) respectively. The main reason is the pronounced year-over-year decrease of household final consumption expenditure (-17.3 % in the EU 27 and -15.3 % in the euro area), in stark contrast with its recent increases above 2 %. In contrast to 2020Q1 when it continued increasing, household gross disposable income decreased in 2020Q2, but at a lower rate (-4.9% in the EU-27 and -2.9% in the euro area respectively) than consumption.
The household saving rate has increased in all but one of the Member States for which data are available for the second quarter of 2020. The highest year-over-year increase is observed for Ireland (+22.0 pp), followed by Spain (+13.7 pp). On the other hand, the household saving rate decreased in Sweden by -0.6 pp. In the ten remaining countries, it increased from +6 pp to +12 pp.
The increase in the household saving rate in the majority of the countries with available data is mainly explained by the large decrease in household individual consumption expenditure. The largest decreases in household expenditure were observed for Spain and Ireland (-23.9 % and -22.8 % respectively). The lowest decreases were noted in Czechia and Denmark (-4.4 % and -7.7 %).
Household investment rate drops in both the euro area and the EU-27
In the EU-27 and the euro area, the household investment rate decreased year-over-year by -0.8 pp (to 7.8%) and 0.9 pp (to 7.9%) respectively, much faster than the decrease observed in 2020Q1. This decrease is explained by the drop in household gross fixed capital formation (-13.8% in the EU-27 and -13.2% in the euro area), much larger than the decrease in gross disposable income of households.
The year-over-year change of household investment rate varied among Member States for which data are available for the second quarter of 2020, with five Member States recording an increase and eight recording a decrease in the investment rate of households. The largest decrease in household investment rate was observed for Ireland (-2.3 pp), followed by France (-2.2 pp), due to the considerable decrease in gross fixed capital formation of households (-38.8% and -25.4% respectively). On the other hand, Finland (0.7 pp) and Sweden (0.6 pp) recorded the largest increases. In both cases, the household gross fixed capital formation increased and the gross disposable income of households decreased year-over-year.
Largest decrease ever in household gross disposable income in the euro area
The year-over-year growth of household disposable income (2020Q2 vs 2019Q2, non-seasonally adjusted data) was -4.9% in the EU-27 and -2.9% in the euro area. Additionally, the contributions to that growth (both the positive and negative ones) changed dramatically compared with the previous years. The compensation of employees was the main negative contributor (by -7.3 pp in the EU-27 and -5.9 pp in the euro area) to the growth of household gross disposable income (normally it was the main positive contributor). The gross operating surplus and mixed income contributed negatively, though in recent years its contribution had always been positive. Additionally, the values of the positive contribution of social benefits other than social transfers in kind, net social contributions and current taxes on income, wealth, etc. were the highest since the beginning of the series, the same as the negative value of the contribution of property income.
Gross disposable income of households increased year-over-year (2020Q2 vs 2019Q2, non-seasonally adjusted data) in four of the countries for which data was available. The largest increases were recorded in Ireland (+5.1%) and Czechia (+3.8%). The rest of the countries had year-over-year decreases, the largest noted for Spain (-8.8%), followed by Italy (-7.2%) and Sweden (-6.7%). In the majority of Member States the change in the gross disposable income of households is mainly explained by the developments of salaries and wages (contributing negatively as they decreased) and social benefits (contributing positively as they mostly increased).
Contraction of business profit share attenuated by the decrease in compensation of employees and the increase in subsidies
Both the EU-27 and the euro area experienced a year-over-year decrease in profit share, by -0.1 pp and -0.8 pp (respectively) in 2020Q2, as compared with 2019Q2 (non-seasonally adjusted data). That decrease was more modest than in 2020Q1, even if then gross value added decreased by 18.6% in the EU-27 and by 16.5% in the euro area, since compensation of employees decreased by 13.6% in the EU-27 and by 11.2% in the euro area and subsidies on production more than doubled.
Seven Member States, for which data are available, observed an increase in non-financial corporation profit share in 2020Q2 compared with 2019Q2, while eight observed a decrease. In all the cases, the gross value added and the compensation of employees plus other taxes less subsidies on production decreased. In the countries where compensation of employees plus other taxes less subsidies on production decreased at a higher rate than gross value added, an increase in profit share was noted. The largest increase was observed in Austria (+8.9 pp), followed by Slovenia (+6.5 pp) and Ireland (+6.3 pp). On the other hand, in the countries where compensation of employees plus other taxes less subsidies on production decreased slower than gross value added, a decrease in profit share was observed; the largest being in Portugal (-7.6 pp) and France (-6.5 pp).
Decrease in non-financial corporation investment rate due to the considerable decrease in gross fixed capital formation, especially in Ireland
The business investment rate of non-financial corporations decreased year-over-year in the EU-27 and the euro area (-2.6 pp and -2.7 pp respectively), due to the large decrease in gross fixed capital formation in most countries, especially in Ireland. Excluding that country, the investment rate would have remained nearly stable in both the EU-27 and the euro area since both the gross value added and GFCF would have decreased at a similar rate (around -20% in the EU-27 and -17% in the euro area).
Six Member States, for which data are available, recorded an decrease in the investment rate of non-financial corporations in 2020Q2 compared with 2019Q2. The largest decrease was observed in Ireland (-71.9 pp) followed by Estonia (-3.9 pp), which was due to the very large decrease in non-financial corporation gross fixed capital formation (-76.2% and -25.5% respectively). On the other hand, seven Member States recorded an increase, the largest three being for Austria (+1.8 pp), France (+1.6 pp) and Portugal (+1.5 pp). In all three cases, this development is explained by the drop in gross fixed capital formation at a lower rate than the drop in gross value added.
The large drop in gross value added led to a record decrease in gross operating surplus of non-financial corporations of the euro area
In 2020Q2, non-financial corporation gross operating surplus decreased at a larger rate than in 2020Q1 in both the EU-27 (-18.7%) and the euro area (-18.1%). These were the largest decreases since the beginning of the series. The main reason was the large negative contribution of gross value added (normally positive). Conversely, both compensation of employees (whose contribution is normally negative) and subsidies on production contributed positively, but still they did not compensate fully for the loss in gross value added.
Ten Member States for which data are available recorded a decrease in gross operating surplus of non-financial corporations in 2020Q2 compared with 2019Q2. France (-38.6%), Portugal (-34.8%) and Spain (-31.4%) had the largest decreases, with the enormous drop in gross value added being the main reason. In these three cases, it was partially attenuated by the positive contribution of the drop in compensation of employees. On the other hand, five Member States recorded an increase in gross operating surplus of non-financial corporations on a year-by-year basis, the highest being in Ireland (+8.4%) and Austria (+4.9%).
Impact of COVID-19 lockdown on the collection, compilation and dissemination of quarterly sector accounts data
Since the beginning of the COVID-19 outbreak, Eurostat has been in close cooperation with National Statistical Institutes (NSIs) to ensure the timeliness and quality of quarterly sector accounts (QSA). The publication of QSA data for the reference period 2019Q4 in April 2020 was already impacted by the lockdown in the majority of Member States, even though the impact was mostly due to organisational aspects (many NSIs had to change their working arrangements) rather than due to source data availability and changes in compilation methods.
Based on the discussions of possible issues and solutions with NSIs, Eurostat released first guidance notes on COVID-19 related compilation processes. This included two notes on QSA compilationand transmissionaspects.
As part of the data transmission of QSA data for the reference period 2020Q1-2020Q2, NSIs sent to Eurostat supplementary information on the availability of data sources and possible adaptations in sources and methods related to data compilation for 2020Q1 and 2020Q2. The main observations are:
- The majority of Member States had put in place government schemes to support enterprises and households by the end of March 2020. They had limited impact on 2020Q1 for the majority of Member States and a larger one in 2020Q2.
- The vast majority of NSIs had access to their regular data sources and were able to use their standard estimation methods, even if for seasonal adjustment there was a need to make adjustments for outliers in the latest quarter of some time-series, according to Eurostat’s guidelines. In certain cases, the data availability for some variables was lower and estimation methods had to be adapted accordingly.
- For certain variables (e.g. taxes and social contributions), also related to support schemes put in place by Member States, it is expected that subsequent routine revisions may be higher than usual.
- Based on the above, for the majority of Member States, the QSA results for 2020Q1 and 2020Q2 are of the same quality as usual. However, for certain Member States, the availability of data sources had an adverse impact on the overall quality of QSA statistics.
The compilation of the European sector accounts follows the European System of Accounts 2010 (ESA 2010) and covers the period from the first quarter of 1999 onwards.
Institutional sectors bring together economic units with broadly similar characteristics and behaviour, namely: households (including non-profit institutions serving households), non-financial corporations, financial corporations, government and the rest of the world. In the latter, to measure the external transactions of the euro area / EU, it is necessary to remove cross-border flows within the area concerned.
In line with their institutional competences, Eurostat and the European Central Bank (ECB) publish integrated non-financial and financial accounts for the euro area. Eurostat also publishes the non-financial accounts of the European Union.
Eurostat's website presents sector accounts by country and derived key indicators, which also include the indicators that combine non-financial and financial accounts such as debt-to-income ratios. The full set of quarterly sector accounts is published for euro area / EU aggregates. Quarterly sector accounts data are also available for most of the European Economic Area (EEA) Member States in the Eurostat database, and a subset of quarterly key indicators is published around 102 days after each quarter. The EEA members whose GDP is below 1% of the EU total do not have to transmit the quarterly accounts of households to Eurostat.
- The European Union (EU-27) consists of 27 Member States: Belgium, Bulgaria, Czechia, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia, Finland and Sweden plus the EU institutions.
- The euro area (EA-19) consists of 19 Member States: Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland, plus the European Central Bank and European Stability Mechanism.
- National accounts, see:
- National accounts (ESA 2010) (na10)
- Quarterly sector accounts (ESA 2010) (nasq_10)
- Key indicators (nasq_10_ki)
- Non-financial transactions (nasq_10_nf_tr)
- Quarterly sector accounts (ESA 2010) (nasq_10)
- Regulation (EU) No 0549/2013 of the European Parliament and of the Council of 21 May 2013 on the European system of national and regional accounts in the European Union.
- Member States whose GDP is below 1% of the GDP of the EU-27 do not have a legal obligation to send quarterly data for households and non-financial corporations to Eurostat.