Investment in Germany and the EU Pedro de Lima Head of the Economics Studies Division Economics Department Berlin 19/12/2016 11/01/2017 1
Slow recovery of investment, with strong heterogeneity Overall Europe s recovery in investments is slow. This is especially true for new Member states and those countries hit most by the crisis. In Germany investment levels, after a drop in 2009, have rebounded quickly and are steadily increasing. The situation compares favorably to most other EU countries. EU investment by country group, and Germany % change relative to Q1 2008 1 Investment by asset class, Q2 2016 (% GDP) 5% -5% -1-15% -2-25% -3-35% IPP Other buildings and structures 25% 2 15% 1 5% Machinery and Equipment Dwellings -4 2008 2009 2010 2011 2012 2013 2014 2015 2016 Core Vulnerable Cohesion Germany Germany Core Periphery Cohesion 2Q2016 Source: EIB, based on National Accounts, Eurostat 11/01/2017 2
% of GDP % of GDP EU infrastructure investments are falling. In Germany, broadly stable EU infrastructure investment has fallen consistently, from 2.3% in 2010 to 1.7% of GDP. Public infrastructure accounts for most of this decline, affected by fiscal space and EU funds. In Germany infrastructure investment has remained broadly stable over the last years. Yet, compared to the EU average the level has been lower. Infrastructure investment % GDP 2,5 EU28 2,5 DE 2 2 1,5 1,5 1 1 0,5 0,5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Government Corporate PPP Project finance - non PPP Source: EIB, based on National Accounts, Eurostat and AMECO 11/01/2017 3
Corporate investment is recovering gradually At the EU level, corporate investment has been the main driver of the (slow) investment recovery In Germany investment by corporations are rebounding after the 2009 drop, and are supported by buoyant household investments, especially in dwellings, as well as government investments. Real GFCF by institutional sector 2008=100 DE 8% 4% -4% -8% -12% 8% 4% -4% -8% -12% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 EU28 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Corporations Financial Institutions Government Households Total Source: EIB, based on National Accounts, Eurostat 11/01/2017 4
EIB Investment Survey The EIB Investment Survey (EIBIS) 2016 Some 12,500 completed telephone interviews in total Survey of non-financial corporate sector (with 5+ employees) Covering manufacturing, services, construction and infrastructure sector Representativeness at high scientific standards for: the EU 28 (as a whole) each Member country (separately) 4 industry grouping (within each Member country for most countries), and 4 size classes (within each Member country for most countries) Implemented once a year (panel plus cross-section) for an initial period of 3 years 11/01/2017 5
Firms expecting to increase/decrease investment in current financial year (net balance, %) Germany shows high share of firms investing and expanding Investment cycle by country 25% 2 15% 1 5% CY Low investment expanding HU PT PL ES SK HR UK IT EU FR AT DE NL CZ BE LU EI SI SE High investment expanding FI -5% MT EE DK -1 LT -15% -2 Low investment contracting High investment contracting -25% 7 75% 8 85% 9 95% 10 Share of firms investing 11/01/2017 European Investment Bank Group 6
Germany Austria Hungary Malta Slovenia Italy Spain Netherlands Luxembourg Estonia Latvia Belgium Ireland Denmark Croatia Slovakia Portugal Finland Czech Rep Romania Sweden France Lithuania UK Poland Bulgaria Average share Much of the machinery and equipment is state-of-the-art Average share of machinery and equipment that is state-of-the-art 10 8 6 4 2 % Base: All firms Q. What proportion, if any, of your machinery and equipment, including ICT, would you say is state-of-the-art? Data not shown for Greece and Cyprus, as the Greek translation may have influenced interpretation of the question. This will be addressed in the next round of interviews. 11/01/2017 7
Share of firms German firms are mostly satisfied with external finance Satisfaction with external finance Very satisfied Fairly satisfied Neither Fairly dissatisfied Very dissatisfied 10 9 8 7 6 5 4 3 2 1 EU DE EU DE EU DE EU DE EU DE Amount obtained Cost of finance Maturity Collateral Type of finance Base: All firms who used external finance in the last financial year (excluding don t know/refused responses) Q. How satisfied or dissatisfied are you with? 11/01/2017 European Investment Bank Group 8
Long term barriers to investments Long term barriers to investment performance A major obstacle A minor obstacle 8 7 6 5 4 3 2 1 EU DE EU DE EU DE EU DE EU DE EU DE EU DE EU DE EU DE Uncertainty about the future Availability of finance Adequate transport infrastructure Business regulations Labour market regulations Access to digital infrastructure Energy costs Availability of staff with right skills Demand for products or services 11/01/2017 European Investment Bank Group 9
Low returns to investment, with quality of capital concerns dominating quantity Germany not immune to the decline in rates of return that is been affecting the EU, reflecting falling rates of productivity growth Quality of capital rather than quantity seems to be a major driver of future invesments Returns to investment % 18 16 2003-2007 2008-2010 2011-2012 2013-2014 Investment priorities for the future Share of (weighted) firms 0 0,2 0,4 0,6 Replacement 14 12 Capacity Extension 10 8 New products, processes etc 6 4 2 No Investment Planned 0 Core VMS Cohesion DE Source: EIB calculation of nominal rates of return, based on firm level data from ORBIS. Above Full Capacity Below Full Capacity Q. Looking ahead to the next 3 years, which of the following is your investment priority (a) replacing existing buildings, machinery, equipment, IT (b) expanding capacity for existing products/services (c) developing or introducing new products, processes, services? Source: EIB Investment Survey 11/01/2017 European Investment Bank Group 10
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 EL ES IT SK DE HU PT AT CZ EU18 SI DK UK NL US FI FR BE IE SE Intangible investment contributing positively but with a gap vs peers Intangibles a driver for investment growth throughout the crisis. While R&D in the EU remains well below peers, Germany is at par with the US However, intangible investment in Germany (R&D, but also designing, branding, new financial products, organizational capital and firm-provided training) is below EU average due to the low investment propensity of services 5% 4% 3% 2% 1% R&D expenditure % of GDP Investments in intangibles % of GDP 12% 1 8% 6% 4% 2% China Japan South Korea USA EU Germany Source: EIB, based on Eurostat and INTAN-Invest database 11/01/2017 European Investment Bank Group 11
Policy messages Differences among countries call for a differentiated approach. Restructuring of the banking sector: Full banking union is key to improve the diversification of financial sources. Pan-European instruments to facilitate efficient risk-sharing. Equity and debt: level playing field for private equity, lower barriers for firms to listing and issuing in capital markets. Public policies and structural reforms should tackle productive investment to boost investments returns. A stronger role of the EIB, as well as reinforcement of EFSI will help to overcome the problem of tight fiscal space and contribute to more quality investment. 11/01/2017 European Investment Bank Group 12
13 Thank you!
Extra slides 11/01/2017 European Investment Bank Group 14
Portugal Cyprus Greece Malta Bulgaria Croatia Hungary Ireland Romania Lithuania Slovenia Latvia Italy Netherlands Slovakia Spain Austria Belgium Germany UK Denmark Estonia France Poland Finland Czech Rep Luxembourg Sweden Few firms are finance constraint Share of finance constrained firms by country 2 Rejected Received less Too expensive Discouraged 15% 1 5% Base: All firms Finance constrained firms include: those dissatisfied with the amount of finance obtained (received less), firms that sought external finance but did not receive it (rejected) and those who did not seek external finance because they thought borrowing costs would be too high (too expensive) or they would be turned down (discouraged) 11/01/2017 European Investment Bank Group 15
Austria Belgium Bulgaria Croatia Cyprus Czech Rep Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden UK Average share of external finance Most investments are financed through bank loans Type of external finance used for investment activities by country 10 Other Grants Loans from family/friends Factoring Leasing Equity Bonds Other bank finance Bank loan 8 6 4 2 Base: All firms who used external finance in the last financial year (excluding don t know/refused responses) Q. Approximately what proportion of your external finance does each of the following represent? 11/01/2017 European Investment Bank Group 16
Finland Denmark Sweden Slovenia Belgium Ireland Luxembourg Czech Rep Austria Netherlands France Germany Croatia Italy UK Estonia Slovakia Spain Poland Malta Portugal Hungary Cyprus Lithuania Bulgaria Latvia Greece Romania Share of firms Investment intensity Investment activity is slightly above EU average Investment activity in last financial year Share of firms investing (%) * Investment intensity of investing firms (N) 10 96% 93% 91% 89% 88% 88% 88% 87% 86% 86% 85% 85% 84% 84% 83% 82% 82% 82% 8 78% 77% 75% 73% 72% 14.000 8 65% 65% 64% 62% 12.000 10.000 6 8.000 4 6.000 4.000 2 2.000 % 0 Base: All firms (excluding don t know/refused responses) *The blue bars indicate the proportion of firms who have invested in the last financial year. A firm is considered to have invested if it spent at least EUR 500 per employee on investment activities. Investment intensity is the median investment per employee of investing firms. 11/01/2017 17
EU Germany Manufacturing Construction Services Infrastructure SME Large EU Germany Manufacturing Construction Services Infrastructure SME Large Average investment share Share of firms Investment activity is slightly above EU average Purpose of investment in last financial year Future investment priorities 10 Capacity expansion New products/services Replacement Other 10 Capacity expansion New products/services Replacement No investment planned 8 8 6 6 4 4 2 2 Base: All firms who invested in the last financial year (excluding don t know/refused responses) Q. What proportion of total investment was for (a) replacing existing buildings, machinery, equipment, IT (b) expanding capacity for existing products/services (c) developing or introducing new products, processes, services? Base: All firms (excluding don t know/refused responses) Q. Looking ahead to the next 3 years, which of the following is your investment priority (a) replacing existing buildings, machinery, equipment, IT (b) expanding capacity for existing products/services (c) developing or introducing new products, processes, services? 11/01/2017 18