Despite a strong commitment to green and digital transitions, firms in the European Union faced significant obstacles related to energy costs and regulatory compliance, according to the latest edition of the European Investment Bank’s investment survey. The survey, conducted annually since 2016, assesses investment dynamics and priorities across nearly 13,000 firms in the EU, with an additional sample from the United States.
Investment outlook
The survey results, on Wednesday 23 October 2024, indicated that 47% of US firms focused on capacity expansion, a significantly higher share compared to their European counterparts. In Europe, investment priorities varied widely, with Luxembourg firms showing the least inclination towards capacity expansion at 17%. This was closely followed by Belgium at 18% and Latvia at 19%. Conversely, Spain, Romania and Bulgaria reported much higher levels, with 42%, 41% and 40% of firms, respectively, prioritising capacity expansion. At the EU level, 36% of firms prioritised replacement investments, while 25% focused on developing new products and services. Notably, the Netherlands and Belgium demonstrated a strong focus on the development of new products and services.
The EIB also noted that although there were slight improvements in the availability of external finance, the overall outlook remained only marginally positive, similar to the situation in the US. Many firms reported significant investment gaps, with 14% indicating they had underinvested over the past three years. Additionally, EU firms allocated 37% of their investments to intangible assets, a higher proportion than their US counterparts, who focused more on physical assets like land and buildings (24% versus 14%). Luxembourg firms were even less inclined to invest in land, business buildings and infrastructure, with only 12% doing so. However, they showed the strongest enthusiasm (22%) for investments in software, data, IT and website activities. Looking ahead, firms in the EU remained cautious, with external economic and geopolitical uncertainties weighing heavily on future investment plans.
EIB also noted in the report that although the corporate sector managed to withstand various shocks relatively well, the share of firms across the EU expecting to increase investment halved in 2024, dropping from 14% in 2023 to just 7% in 2024. Many firms expressed dissatisfaction with the political and regulatory environment and the overall economic climate, with a greater number expecting deterioration rather than improvement over the coming year. EU firms did, however, perceive mild improvements in business prospects within their own sectors and in the availability of internal finance, although these improvements were less pronounced than those seen in the US.
In terms of overall investment levels, many EU firms were satisfied with their investments over the past three years.
Economic security
The report highlighted significant structural investment needs across Europe, particularly in innovation, digitalization and the green transition. EU firms demonstrated heightened awareness of economic security and resilience concerning supply chains, particularly in light of growing geopolitical risks and trade tensions. While concerns about supply chain disruptions eased in both the EU and the US in 2024, logistics, transport disruptions and compliance with new regulations remained key challenges for firms in both regions.
The survey also found that EU firms were less likely than their US counterparts to reduce reliance on international trade, with only 7% intending to decrease their share of imported goods and services, compared to 14% of US firms. EU firms led the way in investments aimed at addressing climate risks, with 34% viewing the transition to stricter climate standards and regulations as a risk to their business over the next five years. In contrast, 42% of US firms identified the transition to a net zero emission economy as a risk. Approximately 90% of both EU and US firms reported having taken action to reduce greenhouse gas emissions, with key strategies including investments in waste reduction, recycling and energy efficiency.
Climate risks
The survey noted that 66% of EU firms reported being directly impacted by physical climate risks, compared to 60% in the US. However, the share of firms taking adaptation measures remained relatively low in both regions, with less than 50% choosing to act. Only 21% of EU firms had insurance against climate risks, similar to the 19% reported by US firms. This lack of focus on adaptation investment and insurance coverage poses a concern as the impacts of physical climate risks intensify.
Innovation and digitalisation
Innovation and digitalisation were identified as key drivers of competitiveness. Despite progress, US companies maintained an edge in innovation, with 81% of US firms using advanced digital technologies compared to 74% of EU firms. Larger firms and those in the manufacturing sector led the way in digital adoption, while the construction sector lagged behind.
Investment barriers
The survey highlighted ongoing investment barriers, with energy costs cited as a major obstacle for 46% of EU firms, significantly higher than in the US. Although the energy crisis had subsided, energy prices in Europe had not returned to pre-crisis levels, leaving EU industries at a competitive disadvantage, especially in energy-intensive sectors. EU firms were also more likely than their US counterparts to perceive business regulations and access to finance as significant obstacles.
Further analysis revealed a fragmented EU single market, with 60% of EU exporters reporting the need to comply with differing regulatory requirements across member states. Approximately 86% of EU firms employed staff to navigate compliance with regulatory standards and the burden was particularly pronounced for small and medium enterprises. Notably, 28% of EU SMEs indicated that over 10% of their staff were dedicated to assessing and complying with these requirements.
In terms of gender equality, the survey indicated that EU firms lagged behind their US counterparts in terms of female representation in senior roles and ownership. The services sector was noted as the best performer within the EU regarding gender equality, highlighting the ongoing need for progress in other sectors.
EIB president Nadia Calviño highlighted in a statement that the commitment of EU firms to green and digital transitions demonstrates the potential of the European economy. She emphasised that the survey confirms public-private partnerships are crucial for strategic investments that maintain the EU’s competitiveness, security and autonomy in global markets.
EIB chief economist Debora Revoltella added that European firms are making significant progress in tackling climate change and advancing digital transformation. However, she noted that increasing EU investment will require a more unified single market.
The full report is available .
Source link : https://delano.lu/article/luxembourg-ranks-last-in-plann
Author :
Publish date : 2024-10-24 09:02:00
Copyright for syndicated content belongs to the linked Source.