Mi. Feb 28th, 2024

Europe must raise productive investment spending significantly if it is to keep pace with global competition and meet net-zero goals, according to the EIB 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.

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