Investing in times of recession and polycrises is difficult. The war in Ukraine is costing the European economy 3.5% of GDP through soaring energy costs alone. But that should not prevent Europe “from significantly increasing its productive investment spending if it wants to keep pace with global competition and achieve net zero consumption targets,” insists the EIB. An EIB that sees four major challenges to address in the coming months.
Less innovative companies
And this first at the corporate level. Companies that first are less likely to innovate or adopt new technologies than their American counterparts. “This is a persistent gap, exacerbated by the pandemic, when European companies have proven less likely to transform than American companies. Underinvestment in innovation as well as in machinery and equipment could compromise Europe’s ability to be competitive in the long term.” In the numbers, the share of companies engaged in innovation fell last year compared to 2021. The gap actually widened by around 10 percentage points in the 2022 survey, to 19 points. percentage. “This gap is explained by the fact that companies in the EU invest less often in the adoption of new technologies and practices,” explains the EIB.
Companies whose “investments are held back by uncertainty, skills shortages and energy costs”. As for investments in the fight against climate change “which, despite the incentives created by rising energy prices, remain held back by administrative obstacles and economic uncertainties”.
In terms of skills, 69% of local governments surveyed for the report say they “lack the environmental and climate assessment skills needed to advance green investments”.
The gap is widening with the United States
Then at the level of the investments themselves.
Productive investment in Europe is 2% of GDP lower than in the United States – and has been for more than ten years – observes the EIB. “Excluding investment in housing, the data shows that a gap of 1.5 to 2 percentage points of GDP in business investment has widened between Europe and the United States. after the global financial crisis, and that it still persists. This gap is explained by the fact that the United States invests more in machinery and equipment and in innovation, in particular in equipment related to information and communication technologies (in the service sector) and in intellectual property (in the public and defense sectors). Business expenditure on research and development is also low in the European Union compared to its international competitors (1.5% of GDP in the European Union in 2020 compared to 2.6% in the United States and the Japan).
Last challenge: investments aimed at limiting climate change. If they increase, “they remain well below what is necessary to reach the European objective of net zero emissions by 2050”. “The European Union must invest 1,000 billion euros per year to reduce greenhouse gas emissions by 55% by 2030. This represents 356 billion euros more per year than for the period 2010- 2020”, calculates the EIB.
For whom leadership in green technologies will be essential for future competitiveness, “but the pre-eminence of the EU in this field is threatened”.
On the need to protect public investment
The solution? “Amid slowing growth and fiscal pressures, public investment must be protected.” The EIB wants to prevent the combined effects of monetary tightening and the period of fiscal consolidation that is beginning to push investment into the background. It encourages States to use the Recovery and Resilience Mechanism (RRF). The RRF is the main instrument of the NextGenerationEU program and is endowed with 723.8 billion euros. “This facility represents around 1% of EU GDP to be disbursed over four years, or almost a third of total public investment.”
“Europe’s future depends on our ability to transform ourselves and embrace the digital and ecological transitions. This requires bold investments, both in the public and private sectors. However, uncertainty, due to the unpredictability of policies and markets, proves to be an obstacle to investment decisions,” said Debora Revoltella, EIB Chief Economist, at the inaugural EIB Forum in Luxembourg. . “We must not miss the opportunity of the green transition. Europe can build on its innovation lead in many green technologies and should further exploit the potential of the European Single Market, reducing administrative barriers to investment and closing skills gaps.”
