Title page
Contents
Preface 6
Key findings 8
PART I. Sustaining investment in challenging times 27
Chapter 1. The macroeconomic environment 30
Chapter 2. Government investment 59
Chapter 3. Corporate investment 96
PART II. Accelerating transformation for competitiveness 141
Chapter 4. Innovation in the global context 144
Chapter 5. Investing in green transformation 188
Data annex 223
Glossary of terms and acronyms 228
Chapter 1. The macroeconomic environment 51
Table 1. Changes in industrial output for specific manufacturing sectors 51
Table 2. Trade balance for specific trade categories (EUR billion) 52
Chapter 2. Government investment 62
Table 1. Nominal government investment and GDP (% change from the previous year) 62
Table 2. Government investment and inflation in 2022 (annual % change) 63
Table 3. Public investment (% GDP) according to the stability and convergence programmes, by year and programme 76
Table 4. Areas with relatively faster RRF implementation (% of total projects planned), 2020-2023 83
Table 5. Areas with bottlenecks in RRF implementation (% of total projects planned), 2020-2023 83
Table 6. RRF grants and the projected improvements in the structural primary surplus (% GDP) 86
Chapter 4. Innovation in the global context 166
Table 1. Digital adoption, digital infrastructure and firm productivity 166
Table 2. Higher performance of firms using digital technologies and artificial intelligence, compared to non-digital firms 167
Table 3. Green innovation, regional green innovation and firm productivity 171
Table 4. Digital firms' response to supply chain disruptions 179
Chapter 1. The macroeconomic environment 31
Figure 1. EU GDP and the components of demand (% GDP), adjusted for season and calendar day 31
Figure 2. Investment and GDP during recent business cycles (an index) 32
Figure 3. Growth and dispersion in growth 33
Figure 4. EU electricity and gas prices and selected producer prices (January 2019=100) 34
Figure 5. EU inflation for different goods (% change from the previous year), by sector 35
Figure 6. Labour costs (% change from the previous year), by sector 35
Figure 7. Industrial output in Germany, overall economy and energy-intensive sectors (2015=100) 36
Figure 8. Labour costs (% change from the previous year), by region 36
Figure 9. Real effective unit labour costs vs. EU trading partners (in %), second quarter 2019 compared to second quarter 2023 36
Figure 10. Appreciation in the real exchange rate vs. domestic value added in exports 37
Figure 11. EU central bank policy rates (in %) 39
Figure 12. Issuance net of purchases of euro area government bonds (% GDP) 40
Figure 13. Bank profits as a share of total assets (in %), by region 40
Figure 14. Factors contributing to tighter credit conditions for non-financial firms (net balance of respondents, in %), euro area countries only 41
Figure 15. Cost of new borrowing and interest rates on outstanding loans in the euro area 41
Figure 16. Euro area households' nominal and real holdings of cash and deposits (2020Q1=100) 42
Figure 17. Vacancies and share of population not in employment (an index, 2019Q4=100), European Union vs. United States 43
Figure 18. EU employment rates (% of population) 44
Figure 19. Share of EU firms reporting that a lack of qualified staff is a major investment obstacle (net balance, in %) 45
Figure 20. Forecast decline in the working-age population by 2030, 2035 and 2040 (% change relative to 2022) 45
Figure 21. EU domestic net savings (% GDP, four quarter moving average), by institutional sector 46
Figure 22. Changes in the structural primary balance according to stability and convergence programmes (% GDP) 46
Figure 23. Euro area sovereign bond yields (in %), by region 48
Figure 24. Energy and non-energy trade balance with countries beyond the European Union (% GDP) 60 000 49
Figure 25. EU imports and exports with countries beyond the European Union (% change from the previous year) 50
Figure 26. World trade volume (goods and services) and world GDP (% change from the previous year) 50
Figure 27. EU exports vs. a broad group of countries (an index), real effective exchange rate 51
Figure 28. Firms' perception of their competitiveness beyond the European Union (net balance of respondents, in %) 53
Chapter 2. Government investment 61
Figure 1. Government investment around economic crises (% GDP) 61
Figure 2. General government investment 62
Figure 3. Earmarked and allocated funding to shield households and businesses from the energy crisis (% GDP), from September 2021 to January 2023 64
Figure 4. Change in government investment and in subsidies and transfers of general government budgets in the European Union relative to the 2022 spring forecast... 65
Figure 5. Investment grants paid by the government (% GDP) 65
Figure 6. Infrastructure finance in the European Union (% GDP), by sector 66
Figure 7. Infrastructure finance in the European Union (% GDP), by institutional sector 67
Figure 8. Central and subnational public investment (left axis: % GDP; right axis: in %), EU average 70
Figure 9. Average public investment (% GDP), by region 71
Figure 10. Central and subnational public investment (left axis: % GDP; right axis: in %) 72
Figure 11. Public investment (in %), by economic activity 72
Figure 12. Subnational climate investment (% GDP) 73
Figure 13. The role of EU-financed programmes (2014-2020 cohesion funds as a % of total public investment) 75
Figure 14. The role of the Recovery and Resilience Facility in supporting public investment, 2023-2026 78
Figure 15. Government spending financed by the Recovery and Resilience Facility 79
Figure 16. Cumulative share of contracts signed after the submission deadline (% of signed offers) 79
Figure 17. Implementation overlaps between RRF and Cohesion Policy funds (% GDP) 80
Figure 18. Gap between plans and projects realised in RRF implementation 82
Figure 19. Status of investment and reforms in 2023 82
Figure 20. EU gross public debt and changes in the fiscal framework (% GDP) 85
Figure 21. Increases in government debt and deficits (% GDP) 85
Figure 22. Cumulative response of real investment to a fiscal consolidation (% change), by number of years after the announcement 87
Chapter 3. Corporate investment 98
Figure 1. Corporate investment (in real terms, 2005 EUR billion) 98
Figure 2. Investment plans and deviation in the profit share 98
Figure 3. Recent evolution in corporate energy costs 99
Figure 4. Corporate vulnerability index 99
Figure 5. Cross country dispersion of the corporate vulnerability index 101
Figure 6. Risk metrics: history and simulations 101
Figure 7. Firms ceasing to operate (left axis: an index, 2018Q1=100) and weak firms across sectors (right axis: percentage point change in share of firms at risk... 102
Figure 8. Rise in the energy bill compared to corporate vulnerabilities 102
Figure 9. Production of high and low energy intensive sectors (an index, 2019=100) 108
Figure 10. Energy price as major concern and whether it caused firms to reduce or stop production 108
Figure 11. Profitable firms in 2023 compared to the historical average 109
Figure 12. How profits contribute to inflation (left axis: unit profit contribution, in percentage points; right axis: GDP deflator, in %) 110
Figure 13. Corporate bank borrowing costs and interest expenses (left axis: in percentage points; right axis: net interest expenses, % GDP) 114
Figure 14. EU financial condition index (de-meaned) 114
Figure 15. Risk and size spreads (left axis: spread in borrowing costs, in basis points; right axis: spreads on bond yields, in basis points) 115
Figure 16. Credit standards applied to corporate loans (left axis: uncertainty, in basis points; right axis: credit standard, in basis points) 115
Figure 17. Impact of monetary policy tightening on investments and main financing variables 116
Figure 18. How investment responds to interest-rate rises or credit tightening (left and right y-axes: the change in the probability of investing in percentage points;... 117
Figure 19. Rates and maturities of corporate loans 118
Figure 20. Cash and liquid-asset holdings (% GDP) 118
Figure 21. Impact on the probability of accelerating investment (eU estimates, percentage-point change in a firm's propensity to accelerate investment) 119
Figure 22. External and internal funding difficulties (% of firms) 119
Figure 23. Impact of funding difficulties on the investment gap (% of firms) 120
Figure 24. Outlook for internal and external financing 120
Figure 25. Energy prices as a major concern and investment in energy efficiency and/or energy generation 121
Figure 26. New products: past change in the share of investment and expected to be a new investment priority 121
Figure 27. Share of euro area firms that say access to finance is an important issue (in %) 123
Figure 28. EIF SME Access to Finance Index (% of firms) 124
Figure 29. Sources of finance for small businesses in the last six months (% of firms) 124
Figure 30. Issuance of securities by small businesses (left axis: volume, in EUR billion; right axis: share of total securitisation, in %) 124
Figure 31. Funding provided by private equity and venture capital (left axis: private equity, in EUR billion; right axis: venture capital, in EUR billion) 127
Figure 32. Venture capital investment based on firms' evolution (% change from a year earlier) 127
Figure 33. Investment obstacles (% of firms) 130
Figure 34. Cross country variation (% of firms) 131
Figure 35. Persistence of investment obstacles (Spearman correlation) 131
Figure 36. Investment obstacles - demand (investment to total assets, in %) 132
Figure 37. Investment obstacles - skills (investment to total assets, in %) 132
Figure 38. Investment obstacles - regression results 133
Figure 39. Investment obstacles and revenue productivity of capital - regression results 133
Figure 40. Impact of removing an investment obstacle on investment (in %) 134
Figure 41. Firms receiving grants also invested more in R&D and innovation in the last year (% of total investment) 134
Figure 42. Grants have a positive and significant impact on innovation in the next three years (change in the probability of investing, in percentage points) 135
Figure 43. Grants and subsidies have the highest impact on the adoption of energy efficiency measures (left axis: % of firms; right axis: change in percentage points) 135
Chapter 4. Innovation in the global context 146
Figure 1. R&D expenditure 146
Figure 2. Top global R&D companies (% of firms), by region 147
Figure 3. Top global R&D companies (% of R&D expenditure), by sector 147
Figure 4. Share of R&D expenditure in 2010 and 2021 (in %), by sector 148
Figure 5. Patenting activities in the European Union, the United States and China 149
Figure 6. Green tech patents, 2012-2021 150
Figure 7. Venture capital investment in clean technologies in the European Union 150
Figure 8. Biotech patents, 2012-2021 151
Figure 9. Digital patents, 2012-2021 152
Figure 10. Artificial intelligence patents, 2012-2021 152
Figure 11. National breeding ground indices of AI and green technologies (logarithm) 153
Figure 12. Salton index of collaboration between countries 153
Figure 13. Development or introduction of new products, processes, or services (% of firms) 159
Figure 14. Innovation and investment in intangible assets (% of total investment) 159
Figure 15. Investment in innovation and investment in R&D 160
Figure 16. Innovation and firm performance (% of firms) 161
Figure 17. Innovation and the availability of external finance 161
Figure 18. Innovation and the availability of external finance 162
Figure 19. Innovation and demand for products or services 163
Figure 20. Use of advanced digital technologies and artificial intelligence (% of firms) 164
Figure 21. Investment in innovation and the use of advanced digital technologies (% of firms) 164
Figure 22. Internet download speed in the European Union in 2021 (megabits per second) 165
Figure 23. Distribution of firm size, average wage per employee and firm productivity 167
Figure 24. Expected net effect of digitalisation on employment (% of firms) 168
Figure 25. Expected effect of digitalisation on employment (% of firms), by productivity quartiles 169
Figure 26. Employment growth before and after digital adoption (in %) 169
Figure 27. Investment to tackle the effects of weather events and to help reduce carbon emissions, and investment in new, less polluting business areas and... 170
Figure 28. Green innovation and transformation, transition risks and firm performance (% of firms) 171
Figure 29. Green tech patents (% of total patents in the region) 172
Figure 30. Markups and obstacles to investment, by whether a firm invests in new, less polluting business areas and technologies 173
Figure 31. Green innovation and transformation and the use of advanced digital technologies 174
Figure 32. The impact of green innovation and transformation on firm characteristics and investment 175
Figure 33. Value added by foreign sources in the exports of selected countries (in %), by sector 176
Figure 34. Location of the final demand for the production of selected countries (in %), by sector 177
Figure 35. Major obstacles to supply chains (% of firms) 177
Figure 36. Changes in the strategy to source inputs (% of importing firms) 178
Figure 37. Responses to supply chain disruption (% of importing firms) 179
Chapter 5. Investing in green transformation 190
Figure 1. EU energy imports by supplier in the second quarter of 2023 (in %, top panel) and change in market share compared to the second quarter of 2022... 190
Figure 2. Investment needed to reach 2030 goals for Fit for 55 and REPowerEU (left panel), and wind and solar capacity targets for 2030 (right panel) 191
Figure 3. Estimated drivers of change in EU demand for natural gas, by region 2022 vs. 2021 191
Figure 4. Gas price developments (€ per megawatt hour, top panel) and activity index (2015=100, bottom panel) by industrial sector 192
Figure 5. Heating (left panel) and cooling degree days (right panel) in EU regions, decade averages 1980-2022 193
Figure 6. Impact of the energy shock on gas and electricity consumption 194
Figure 7. Change in annual EU carbon emissions (in %), 2021-2022 194
Figure 8. Installed capacity of renewable electricity (GW, left panel), 2015-22, and electricity production from solar and wind power (tW/h, right panel), 2017-2023 195
Figure 9. EU heat pump sales (left panel), and electric vehicles sales by country (right panel), 2016-2022 196
Figure 10. EU clean energy investments (EUR billion, left panel), by sector 2021-2022, and regional comparison (EUR billion, right panel), 2015-2023 197
Figure 11. Spending on energy since the beginning of 2022 (% of firms) 198
Figure 12. Marginal effects of energy spending increases on the likelihood of a firm being profitable (in percentage points) 198
Figure 13. Impact of energy cost concerns on investment (% of firms) 199
Figure 14. Major concerns related to the energy shock (% of firms) 199
Figure 15. Strategies for dealing with the energy shock (% of firms) 200
Figure 16. Investing in energy efficiency (% of firms) 200
Figure 17. Likelihood of firms investing in energy efficiency (in percentage points), based on the strategies they adopted to deal with the energy crisis 200
Figure 18. Likelihood of firms investing in energy efficiency (in percentage points), based on their concerns about the energy crisis 200
Figure 19. Effects of higher energy costs and uncertainty on the likelihood of investing in climate action and energy efficiency (in percentage points),... 201
Figure 20. Impact of the energy transition on firms (in %) by region, sectors, energy intensity and size 202
Figure 21. Acting to reduce greenhouse gas emissions (% of firms) 203
Figure 22. Probability of investing in new green products and services (in %), by transition risks 203
Figure 23. ETS emission prices (left axis: €/tCO₂) and verified emissions and free emission allowances (right axis: tCO₂) 204
Figure 24. Emissions (an index, 2013=100), by sector 205
Figure 25. Producer prices, production and emissions in EU manufacturing (an index, 2013=100) 205
Figure 26. Production prices in energy-intensive manufacturing sectors (an index, 2013=100) 205
Figure 27. Impact of ETS prices on firms' strategies (a coefficient) 206
Figure 28. Changes in the allocation of free allowances (indexes) 206
Figure 29. Effects of losing the carbon-leakage status on emission intensity 207
Figure 30. Change in the emissions intensity of firms that lost their carbon-leakage status vs. those that retained it (in %) 207
Figure 31. Distribution of changes in firms' carbon intensity (carbon intensity index, 2013=100), by sector 208
Figure 32. Differences in the characteristics of firms lagging in decarbonisation vs. the sector average (average=100) 208
Figure 33. Relationship between firms' leverage and carbon intensity (a coefficient) 209
Figure 34. Relationship between firms' leverage and carbon intensity (a coefficient), by deciles of the carbon intensity of firms covered by the ETS 209
Figure 35. Firms (in %) affected by physical climate risks 216
Figure 36. Firms (in %) investing in specific adaptation measures 216
Figure 37. Factors influencing the probability of investing in adaptation measures (in percentage points) 217
Boxes
Chapter 1. The macroeconomic environment 37
Box A. Why did inflation rise so much more in Eastern Europe? 37
Box B. Trade reallocations: appearance and reality 53
Chapter 2. Government investment 67
Box A. Trends in infrastructure project finance 67
Box B. Analysing subnational public investment drivers and constraints 74
Box C. Illustrating the effect of public investment on firm investment 88
Chapter 3. Corporate investment 103
Box A. Electricity prices and perspectives on competitiveness 103
Box B. Investment decisions under high inflation 110
Box C. Findings from the EIF Venture Capital Survey 2023 127
Chapter 4. Innovation in the global context 154
Box A. Innovation and commercialisation of green and sustainable technologies in Europe 154
Box B. The position of the European Union, the United States and China in complex technologies 156
Box C. Skills for a changing environment 181
Chapter 5. Investing in green transformation 210
Box A. Manufacturing firms in the EU Emissions Trading System - what makes the leaders stand out from the rest? 210
Box B. How regional spillovers shape firms' climate investments in Europe 218
Box Tables
Table B.1. Net investment of firms as explained by financial variables and public investment 90
Table B.2. Public investment in climate change is encouraging firms to invest in climate measures 91
Box Figures
Chapter 1. The macroeconomic environment 38
Figure A.1. Energy intensity vs. share of fossil fuels in the energy supply 38
Figure A.2. GDP growth during the pandemic vs. shortages of skilled staff 38
Figure B.1. Change in the share of imports held by the top EU and US trading partners (in %), 2010-2022 54
Figure B.2. The share of Chinese imports in selected products, (change in %), European Union vs. United States 55
Figure B.3. Changes in US imports vs. Chinese export growth (in %), 2018-2022 55
Chapter 2. Government investment 68
Figure A.1. Total project-financed infrastructure (transaction volumes, EUR billion) 68
Figure A.2. Project financing of renewable energy (transaction volumes, EUR billion) 68
Figure A.3. Power-generating projects (left axis: capacity in GW; right axis: EUR billion) 69
Chapter 3. Corporate investment 104
Figure A.1. Differences in EU energy prices vs. global trading partners (EUR 2021/MWh) 104
Figure A.2. Industrial retail electricity prices: European Union vs. United States, United Kingdom, China and Japan (EUR 2021/MWh) 104
Figure A.3. Industrial production in manufacturing and energy-intensive industries in Germany (production index, 2015=100) 105
Figure A.4. Price fluctuations in the daily production of natural gas vs. solar power (left axis: MWh; right axis: EUR /MWh) 106
Figure B.1. Determinants of increased investment or investments in energy efficiency 112
Figure B.2. Investment in energy efficiency and the ability of firms to pass energy costs onto consumers 112
Figure C.1. Biggest challenges faced by venture capital portfolio companies over time (% of firms) 128
Chapter 4. Innovation in the global context 155
Figure A.1. Trends in international patent families in selected clean and sustainable technologies, 2001-2020 155
Figure A.2. Contribution to international patent families in selected clean and sustainable technologies (in %), 2016-2020 155
Figure A.3. Distribution of international patent families and applications, by company size 2016-2020 156
Figure B.1. EU position in complex technologies vs. the United States and China, 2019-2022 157
Figure C.1. Aggregate reporting of major skills obstacles and training (% of firms) 182
Figure C.2. Investment in training and skills as a major barrier to investment (% of firms), by sector 183
Figure A.1. Presence and impact of a decarbonisation strategy for firms covered by the Emissions Trading System (% of firms) 210
Figure A.2. Firms' reported decarbonisation status (in %) 211
Figure A.3. Carbon intensity of firms that say they are ahead or behind on decarbonisation (an index, 2013=100) 211
Figure A.4. Firms' investment focus and dynamics 212
Figure A.5. Enabling factors and obstacles to climate investments (% of firms) 213
Figure A.6. Policy initiatives that would encourage investment (% of firms) 215
Figure B.1. Average number of adaptation (left) and mitigation (right) measures adopted by firms, by NUTS 2 region and distribution quartile 218
Figure B.2. Direct, indirect and total effects of various factors on the number of adaptation (left) and mitigation (right) measures adopted (a coefficient) 219
Annex Tables
Table 1. EIBIS at a glance 224