Published as part of the ECB Economic Bulletin, Issue 1/2020.
Investment research indicators help assess trends in business investment in the euro area. The World Business Outlook Survey on Future Business Conditions is produced every three years by IHS Markit and collects data in February, June and October, making it more attractive compared to other available investment surveys. Provides more timely information. As IHS Markit shows, the questionnaire was sent to a representative committee of manufacturing and service companies to ensure that it reflects the economic structure of each country in terms of sectoral contribution to GDP, regional distribution and company size. Carefully selected. Furthermore, its harmonized methodology allows for a direct comparison of business expectations across euro area countries, which is particularly useful for monitoring ongoing developments in business investments and policy assessments.
The outlook for manufacturing investment has worsened since mid-2018, indicating that business investment is constrained by heightened global uncertainty and sector-specific challenges (see Chart A). Over the past few years, indicators have shown dispersion in the outlook for capital investment across sectors, with the decline in the outlook for investment in the services sector being slower and more subdued, with the sharp downtrend in manufacturing. The European Investment Bank's (EIB) latest investment report and research shows that increased uncertainty related to geopolitical events such as Brexit and further escalation of trade tensions is having a negative impact on investment. There is.[1] The report also notes that the political and regulatory environment also appears to be weighing on investment prospects. Additionally, continued uncertainty surrounding sector-specific challenges, including the automotive industry, is expected to dampen business investment.
Chart A
Eurozone sectoral investment outlook and real business investment
(Left axis: year-on-year growth rate, right axis: net balance)
Source: IHS Markit, Eurostat, ECB calculations.
Note: Fixed asset investment (excluding construction) represents the sum of the four largest euro area countries (Germany, Spain, France and Italy). Historically, these have, on average, accounted for around 75% of total business investment in the 19 euro area countries. Latest observations are from Q3 2019 for real business investment in fixed assets (excluding construction) and October 2019 for the Business Investment Outlook series. The net balance of the Capital Expenditure Outlook Index is calculated by subtracting the percentage of surveyed companies expecting the outlook to worsen over the next 12 months from the percentage of companies expecting it to improve. The value of net balance varies between -100 and 100. Therefore, a value above 0 indicates a positive outlook for the company regarding its business investments in the next 12 months, whereas a value below 0 can be interpreted as a deteriorating outlook and a value of 0 as a neutral outlook.
Company forecasts available as of October 2019 point to further deterioration in the euro area manufacturing investment outlook in the near term. The headline investment outlook (albeit in positive territory) fell sharply in October, driven by a contraction in manufacturing investment expectations (in negative territory for the first time since 2012), in parallel with a measurable decline in services investment expectations. This is in line with the latest evidence from the bi-annual European Commission (EC) Industrial Investment Survey, which forecasts annual manufacturing investment growth in the euro area in 2019. This has been significantly revised downward from 4% to minus 2%. In November 2019, the percentage was %.[2] According to the survey results, investment is expected to be curtailed in most industrial sectors, with large companies accounting for the downward revisions in investment plans for 2019. Furthermore, the 2019 EIB Investment Survey shows that the number of manufacturing companies planning to cut capital expenditures is decreasing. 2019 saw an increase for the first time in the past four years.[3]
The country- and sector-level findings point to German manufacturing as the main driver of the decline in capital investment prospects. The results of the latest economic outlook survey for October 2019 suggest differences across countries and sectors, with investment prospects remaining positive in France and Italy, while investment expectations have deteriorated significantly in Germany and Spain. It seems there is. Overall, business investment in the euro area is expected to continue to be supported by the services sector, which will cushion some of the decline in manufacturing investment (see Graph B, left panel). The outlook for R&D investment is also uneven (see Exhibit B, right panel). However, recent surveys have shown a wide range of declines in survey indicators across countries and sectors, and the latest results suggest a fairly stable situation overall. Looking to the future, the EC Industrial Investment Survey suggests that the euro area investment outlook in 2020 is somewhat better than in 2019, returning to positive territory, albeit still at a slower pace.
Chart B
Business outlook for capital investment and R&D investment across countries and sectors
(Left chart: Performance forecast for capital investment, right chart: R&D investment, net balance)
Source: IHS Markit and ECB calculations.
Note: ES service data is not available. The latest observations are from October 2019.
