In recent years, despite significant shocks, the European economy has shown resilience, but in the future, strong support for private investment will be key to maintaining the pace of growth and further increasing total investment, says the European Investment Bank (EIB) in its latest “Investment Report”.
“In recent years, the European economy has demonstrated extraordinary resilience despite unprecedented shocks. In the future, strong support for private investment will be crucial to maintaining the pace of growth and further increasing overall investment,” the report said.
In the EIB's assessment, Europe is now at a critical turning point and decisive policy action and large-scale capital investment are needed to address the threats and seize the opportunities.
“The new world order poses a challenge to Europe's traditional sources of security, stability and competitiveness. Global tensions and the changing position of the transatlantic alliance coincide with a major technological revolution. At the same time, industries supporting a net-zero emission economy have the opportunity for explosive growth,” they wrote.
“The digital revolution increases productivity and efficiency and fosters economic, social and territorial integration, while spurring innovation. Globally, intensifying competition between superpowers is bringing the European Union and other like-minded countries closer together. These rapid changes require a radical shift in investment, especially private investment, in security, defense, technology, energy, natural resources, access to markets and trade,” it added.
The analysis of the European Investment Bank indicates the untapped potential of the EU single market – the EIB estimates that improving its efficiency and scale would strengthen the position of the European Union both internally and internationally.
“The EU single market provides scale, business opportunities and the efficient and secure organization of European supply chains, and has a clear track record of increasing investment opportunities. The single market has underpinned 25% of new investment recorded in the EU since the 1980s. However, integration is slowing: 62% of EU companies say they face EU market fragmentation when exporting. Removing these barriers could increase business investment intensity by 10%, with even greater benefits for intangible investments, which are crucial for EU innovation,” says the EIB.
“The efficiency and scale of the EU market are key advantages both internally and globally. Globally, Europe is still perceived as a stable and trustworthy partner, actively concluding new cooperation agreements with Latin America (Mercosur) and India. EIB Group estimates show that the free trade agreements currently being negotiated – which cover 12.5% of EU exports to the rest of the world – have the potential to increase exports to the countries covered by the agreements by 20.6%. and increase total EU exports by 2.6%. – it was written in the report.
The EIB points out that an Investment and Savings Union could unlock EU savings to finance innovative businesses across Europe.
“Proven public sector instruments, such as risk sharing, securitization, venture capital and debt, effectively mobilize private savings. Pan-European mechanisms help level the playing field, increasing enterprises' access to capital for development and fostering the creation of stronger innovation ecosystems,” it said.
“For investors such as pension funds and insurance companies, pan-European instruments open up new opportunities and increase risk diversification,” it added.
As the authors of the report point out, Europe's competitive advantage in rapidly changing sectors is based on its ability to combine innovation, sustainable development and market scale.
“Europe maintains a strong position on the global market in several strategic industries, including health technologies, advanced manufacturing and robotics, clean energy technologies, agriculture and bioeconomy, semiconductor equipment, aviation, quantum and high-performance computing and automotive,” the EIB points out.
In the EIB's assessment, although digitization and the implementation of artificial intelligence increase the efficiency of European enterprises, they also create strategic dependencies in an increasingly polarized world.
“EIB analysis shows that the implementation of artificial intelligence has already had a significant impact on the productivity of EU businesses, accounting for around 12% of the total productivity growth recorded since 2019. In the short term, Europe will benefit from its strong industrial base and enabling digital infrastructure,” it said.
“In the long term, the development of generative artificial intelligence will increase strategic dependencies and investment needs in innovation, data centers and energy. Europe's strategic position will be strengthened thanks to a coordinated, pan-European approach that takes into account initiatives and investments in state-of-the-art computing infrastructure, EU data space and cybersecurity,” it added.
In the energy sector, the EIB believes that investments in cross-border interconnections and system flexibility (e.g. combining energy storage with generation), in the electricity grid and wider electrification should be accelerated to prevent the emergence of new bottlenecks.
In the context of defense spending, the authors of the Investment Report point out that while its primary purpose is to ensure Europe's security and resilience, it can also contribute to broader economic growth by increasing productivity, especially in the case of military and dual-use R&D&I spending and investment.
The authors of the publication note that while Europe continues to lead the world in terms of social performance and well-being – thanks to comprehensive social security systems, high standards of public services and strong social cohesion – social investment is crucial.
“Housing needs are becoming more urgent: 51% of people living in EU cities say the lack of affordable housing is their most pressing problem. Addressing the housing shortage would enable people to move to areas with better job opportunities and could increase EU GDP by 1.7% and reduce pay inequality across the EU by around 1.5%.” – estimates the European Investment Bank.
The authors of the report indicate that, given the limited available resources, future public support will have to focus even more on the impact and mobilization of private capital. (PAP Business)
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