economic crisis Filippo Gregorini Leonidas Akritidis Eurostat, Unit - PowerPoint PPT Presentation

Households in Europe in years of economic crisis Filippo Gregorini Leonidas Akritidis Eurostat, Unit C.1 – Sector Accounts NTTS Conference Brussels, 11 March 2014

Focus on consumption & saving "For New Classical economics , since saving is the result of individual utility maximization, it must, absent externalities, be just right . Behavioral macroeconomics , in contrast, has developed theoretical tools and empirical strategies to advance understanding of such time-inconsistent behavior ." [George A. Akerlof, 2002] 2 Eurostat

Classical theories, and the crisis What (should) help explaining the fluctuations of the household saving ratio over the period 1999 to 2013? Precautionary motive - Keynes (1936) • Consumption smoothing - Friedman (1957) • Risk aversion - Leland (1968) • BUT in the PRESENCE of CREDIT CONSTRAINTS, to react to • (anticipated or not) income changes in most cases is simply NOT a viable option! – Jappelli and Pistaferri (2010) 3 Eurostat

The crisis, and its consequences " Europe was a quite remarkable integration machine when Solow-type convergence was not very widespread. It would be quite a paradox if the continent were to now experience prolonged divergence when Solow is making a comeback at the global level." [Pierre Wunsch, 2013] 4 Eurostat

The story 1. The relevance of household sector (S14_S15) 2. Earning & spending 3. Savings & consumer durables 4. Further controls 5 Eurostat

The relevance of households (S14_S15) S14_S15 contribution to S1 GDI 100% 1999-2007 2007-2013 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% European Euro area Germany Spain France Italy United Union (28 (18 Kingdom countries) countries) 6 Eurostat

Nominal growth of earning & spending Yearly S14_S15 P31 nominal growth Yearly S14_S15 GDI nominal growth 10% 10% 1999-2007 2007-2013 1999-2007 2007-2013 9% 9% 8% 8% 7% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% -1% -1% European Union Euro area (18 Germany Spain European Union Euro area (18 Germany Spain (28 countries) countries) (28 countries) countries) 7 Eurostat

DE and ES: a comparison… …in per capita terms Up to 2009, Spain nominally grew faster than Germany, but then it shows no growth, whereas Germany kept on increasing since 2009, after a stable path in 2007-2009. Germany population remained stable (from 81.7 and 82.5 mlns) between 1999 and 2013. In the same period, Spain population increased from 40 to almost 47 mlns. Gap in per capita GDI between Germany and Spain (thousands of euro) 8,000 7,000 6,000 5,000 4,000 8 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Eurostat

Savings: somewhere "stable" Gross savings 1,200,000 600,000 European Union (28 countries) (left) Euro area (18 countries) (left) Germany (right) Spain (right) 1,000,000 500,000 800,000 400,000 600,000 300,000 400,000 200,000 200,000 100,000 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 9 Eurostat

Correction for durables*? *The definitions of consumer Durables consumption as % of savings durables are based on the United Nation COICOP classification of final 120% Germany Spain Household consumption 110% expenditure, which are as follows: 100% 90% CP051 - Furniture and • Fittings 80% CP053 - Household • 70% appliances CP055 - Tools and 60% • equipment for House and 50% Garden CP071 - Purchase of 40% • vehicles 30% CP082 - Telephone and • telefax equipment 20% CP091 - Audio-visual • 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 equipment CP092 - Other major • In Spain fall of consumer durables together with durables for recreation saving boom in 2007-2009. Then decline of and culture CP123 - Personal effects • savings and low level of consumer durables. n.e.c. 10 Eurostat

…in per capita terms Gap in per capita savings and durables between Germany and Spain (thousands of euro) 2,500 4,000 Total (right) Savings (left) Durables (left) 2,000 3,500 1,500 3,000 1,000 2,500 500 2,000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 After the Spanish saving boom (2007-2009, bad future expectations) a constant increase of gaps in terms of both savings and consumer durables. 11 Eurostat

Correlation between earning & spending in the EU after 2007 MSs whose correlation is above 0.9 MSs whose correlation is below 0.9 Missing data Incomplete information 12 Eurostat

Saving rate variance in the EU Latvia The tables rank EU countries by Slovenia changes in saving rate variance in Cyprus Lithuania Latvia 2007-2013 compared to Cyprus Lithuania 1999-2007. Denmark Portugal Slovakia Italy Sweden Slovenia by United Kingdom Denmark by SAVING RATE Portugal Slovakia Hungary SAVING RATE corrected for Belgium Croatia durables Austria Spain Spain Germany Czech Republic Netherlands United Kingdom Czech Republic Hungary The countries in red are the ones where Belgium Finland the correlation between earning and Italy France spending has fallen below 0.9 after 2007 Austria Germany (map on previous slide). France Finland 13 Eurostat

Further controls • Financial assets analysis show increases in liabilities from 2007 onwards, in particular in "red" countries . • Real assets (housing) play a decisive role in determining the net wealth of households. Homeowners share is 82.7% in Spain and 44.2% in Germany. It is therefore apparent that the relative position of households in countries where homeowners share is high and the housing bubble occurred is worsening . [source: Eurosystem Household Finance and Consumption Survey, ECB 2013] 14 Eurostat

It's all about economics… • Significant decrease in correlation between DGI and consumption & changes in saving rate variance display a picture where uncertainty on the future has increased to unpredictable levels in some EU countries from 2007 onwards . No "classical" theories seem to be able to explain this. 15 Eurostat

… • A detailed comparison between "core" and "periphery" EU countries seems to suggest that Europe going from pre-crisis convergence to long term divergence , as argued by Wunsch (2013). Saving rate & GDI per capita gap: Cyprus and Sweden 20% 10,000 GAP (right) Cyprus (left) 9,000 Sweden (left) 15% 8,000 7,000 10% 6,000 5% 5,000 4,000 0% 3,000 2,000 -5% 1,000 -10% 0 16 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Eurostat

…or not? 17 Eurostat

Thank you for your attention! Благодаря ви за вниманието! Tack för er uppmärksamhet! Děkuji vám za pozornost! Tak for jeres opmærksomhed! Dank u voor uw aandacht! Tänan tähelepanu eest! Kiitos huomiota! Merci pour votre attention! Vielen Dank für Ihre Aufmerksamkeit! Σας ευχαριστώ για την προσοχή σας! Köszönöm a figyelmet! Go raibh maith agat as do aird! Grazie per l'attenzione! Paldies par jūsu uzmanību! Ačiū už Jūsų dėmesį! Grazzi għall - attenzjoni tiegħek! Takk for oppmerksomheten! Dziękuję za uwagę! Obrigado pela vossa atenção! Vă mulţumesc pentru atenţie! Ďakujem vám za pozornosť! Hvala za vašo pozornost! Gracias por su atención! 18 Eurostat