Companies in the Eurozone are largely holding back on investments. In its latest economic report, the European Central Bank speaks of a „gloomy outlook“ and a „historic low“. And the central bankers expect this reluctance to continue this year. Surveys suggested that investment intentions in the manufacturing sector were „limited“ even in historical terms (excluding times of crisis).

Surveys would have predicted an increase in replacement and rationalisation investments at least by the end of 2023. Now, stagnation is assumed. However, a reduction in investments for capacity expansion had been apparent for some time. In a survey by the EU Commission, the ECB quotes that this share in the manufacturing sector will have been reduced to just 20% by 2023. That is already 20 percentage points lower than the average before the pandemic.

Business investments are crucial for overall economic development, and are also seen as a guarantee for future growth. Either because they serve to expand for higher production. Or because they promote innovations that then lead to higher productivity or open up new markets. Ultimately, investments are the assurance that a location is gradually modernising for the industrial base of the future.

The ECB has identified recent crises as a reason for the low willingness to invest. The pandemic, the energy crisis with enormous price jumps, and the subsequent tightening of financing conditions would have significantly reduced business investment in the euro area in 2023.

According to the ECB, high energy costs, in particular, have proven to be the „biggest long-term obstacle to investment in Europe“. This slows down investment. “Although the recent crisis in many sectors may continue to require additional investments in the future to reduce energy dependence, longer-term profitability considerations appear to be in those sectors where energy costs account for more than 10% of total costs „, increasingly leading to investments being held back,“ writes the ECB.

More investment would also be in line with the EU’s Green Deal. The EU Commission's latest inventory suggests that significantly higher investment – at least a further 1.5% of EU-wide gross domestic product (GDP) per year compared to the period 2011 to 2020 – would be required to meet the EU's longer-term CO2 target.

There is also a large discrepancy between the countries of the Eurozone. While investment intentions in Slovakia, Spain, Italy and Portugal are pointing significantly upwards, they are more or less stagnating in Germany.

More investment is being made in the Eurozone in the area of ​​digital technologies. However, there is still a „big gap compared to the United States“ in terms of the use of artificial intelligence (AI), big data and the patenting of new technologies, warns ECB.

As a rule, high investment rates drive the productivity of work processes and help companies to operate more successfully in the market. With the investment crisis, productivity is also falling. But there are other reasons for this, as the ECB explains in another report. Since the pandemic, productivity growth has slowed dramatically: Average productivity per employee has fallen by an average of 0.2% per year since the fourth quarter of 2019, compared to an average growth of 0.8% per year before the coronavirus.

According to the ECB's findings, securing employment during the crises contributed to this. Higher profit margins combined with lower real wages, a sharp increase in the number of employed people and a low number of average hours worked led to an increase in employment. However, these factors are now losing some of their importance because profits are weakening and real wages are rising. Further improvements in the labour market could, therefore, only be achieved once productivity grows again, which is difficult to imagine without new investments.