EU firms are less likely to innovate or adopt new technologies than their US peers.
Investment volumes in Europe are not sufficient to meet net-zero targets.
Productive investment in Europe is 2% of GDP less than in the United States (and has been for over a decade).
Firms’ investments are hampered by uncertainty, skills shortages and energy costs.
Europe must raise productive investment spending significantly if it is to keep pace with global competition and meet net-zero goals, according to theEIB Investment Report 2022-2023 published today. The gap in productive investment between the European Union and the United States is nearly 2% of GDP, a lag that has persisted for more than ten years. The EIB Investment Report — an annual publication based on the EIB Investment Survey answered by around 12 500 businesses across Europe — shows that the share of firms engaged in innovation dropped last year compared to 2021. Businesses named uncertainty, skill shortages and high energy costs as the major constraints on investment.
“Europe’s future depends on our ability to transform and embrace the digital and green transitions. This calls for bold investment in both the public and the private sectors. However, uncertainty, driven by unpredictable policy and market conditions, is proving to be a barrier to investment decisions,”said EIB Chief Economist Debora Revoltella ahead of the report’s release, at the inaugural EIB Forum in Luxembourg. “The opportunity of the green transition cannot be missed. Europe can leverage on its innovation lead in many green technologies and should further exploit the potential of the EU single market, reducing administrative hurdles for investment and addressing gaps in skills.”
Data from the EIB Investment Survey show that EU firms are less likely to innovate or adopt new technologies than US firms. This is a persistent gap, exacerbated by the pandemic, when firms in Europe proved less likely to transform than those in the United States. Underinvestment in innovation as well as machinery and equipment could compromise Europe’s ability to compete in the long term.
Green investment by companies advanced in 2022, following a dip during the pandemic. However, the outlook for corporate investment to tackle climate change is mixed, dampened by administrative barriers and uncertainty. EIB analysis of the drivers of firms’ green investment suggests that this uncertainty may partially outweigh the incentives created by higher energy prices.
While Europe is trailing behind the United States in digital innovation, green technologies are a field in which the European Union has remained an innovation leader. In patenting green technologies, Europe’s main strengths lie in transport, smart grids and wind energy. Still, its current edge could be under threat.
Global competition around green technologies is intensifying, particularly with the US Inflation Reduction Act and China’s growing focus in this area. While Europe has been a leader in green innovation so far, it must continue to build on that position by seizing opportunities created by its single market. Clear policy frameworks, a level playing field within Europe, investment in skills, and conscious efforts to maximise the complementarity of public and private investment activities will all play a role.
Skills are crucial in the digital and green transitions. 69% of municipalities polled by the EIB stated that they lack the environmental and climate assessment skills needed to advance green investments. Despite policy support, regional cohesion is also at risk, with less developed regions in Eastern Europe relatively more exposed to a combination of stressors. Addressing local capabilities, fiscal constraints and regulatory hurdles will be especially decisive for the successful implementation of the Recovery and Resilience Facility.
Governments must preserve and strengthen incentives for a greener, better integrated single market that is well shielded from turbulence, while also delivering policies that reduce uncertainty and enable firms to invest.
About the EIB Investment Report
The EIB Investment Report is the annual flagship report of the European Investment Bank. Designed to serve as a monitoring tool, it provides a comprehensive overview of the developments and drivers of investment and its finance in the European Union. The report combines internal EIB analysis with the results of collaboration with leading experts to explain key market trends and give a more in-depth look at a particular thematic focus. The 2022-2023 edition reflects the EU economy’s resilience to repeated shocks and its capacity to renew itself, delivering on the promise of productive public and private investment. It incorporates the latest results from the annual EIB Investment Survey, covering the answers of some 12 500 firms across Europe to a broad spectrum of questions on corporate investment and investment finance, as well as a survey of EU municipalities.
The outbreak of COVID-19 in Europe had immediate and wide-ranging consequences for investment: according to the new edition of the EIB Investment Report 2020/2021 “Building a smart and green Europe in the COVID-19 era”, EU firms are likely to reduce investment by at least 25% in the year following the crisis. The report also shows that in a post-pandemic “new normal”, investment in digitalisation, innovation and climate will be more important than ever before. Without such investment, large sections of Europe’s economy risk falling behind. However, the European Union now has the opportunity to build on its leadership in green and digital technologies to recover from the pandemic, manage the climate transition and maintain its ability to compete in the global technology race.
European firms are becoming increasingly pessimistic about the economic outlook according to the new EIB Investment Report 2019/2020. The report also finds that investment in climate change mitigation is lower than that of major economies like the US and China. Infrastructure investment is stuck at 1.6% of EU GDP, the lowest in 15 years and Europe is failing to reap the benefits of digital transformation. The report, which reflects the results of the annual EIB Investment Survey (EIBIS) of 12,500 European businesses, recommends that the EU take advantage of historically low interest rates, increase public investment, catalyse private investment and promote efficient financial intermediation to tackle the slowdown.
In a survey published today, 12,500 firms (comprising the whole range from small SMEs with more than 5 employees to larger corporates) across the EU 28 have been interviewed to assess what they consider are their prime investment needs and the obstacles to investment they face. The first EIB Group Survey on Investment and Investment Finance (EIBIS) is a unique survey covering the EU corporate sector and its attitude towards investment and investment finance activities. Today’s report will be repeated every year by EIB Group economists.