eu challenges, investment and investment finance …...10 march 2014 1 eu challenges, investment and...

10 March 2014 1

EU challenges, Investment and Investment Finance crisis,

and the Role of the EIB

Wilhelm Molterer and Debora Revoltella European Investment Bank

10 March 2014

Outline

• The EU challenges • The Investment and Investment Finance crisis • EIB contribution to jobs and growth

2

10 March 2014 3

EU real and potential growth Change in potential growth and its drivers - 2013 vs 2007

Gradual recovery, but the crisis has led to a significant reduction in EU growth potential

Source: Eurostat

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

AT NMS EU

2013

/200

7 TFP

Capital

Labour

Potential growth

Real GDP growth forecasts - 2014

Presenter

Presentation Notes

Using a production function approach, potential GDP growth in Austria decreased by 0.9 percentage points between 2007 and 2013. The contribution of labour to potential growth increased from 0 to 0.2 percentage points. This reflects mainly an increase in the number of people employed, which is visible also in an increased employment rate: 74.4% in 2007 vs 75.6% in 2012

10 March 2014 4

Evolution of EU growth and investments (2008 = 100)

Change in investment between 2008 and 2013 (in percent)

Investment has fallen across the EU but the drop is distributed unevenly across the membership

Europe is still in a deep investment crisis

Source: European Commission

80

85

90

95

100

105

2008 2009 2010 2011 2012 2013

% EU AT NMS

-60 -40 -20 0 20

ELCYIESIPTESBGHRLVMTITHULTRONLSKCZEU-28DKEEFIBEFRDELUATSEPL

Presenter

Presentation Notes

Investment in Austria has recovered much faster than in the EU as a whole. As the right hand chart shows, only in Sweden has investment grown faster since 2007

10 March 2014 5

Unemployment rate (total) (in percent)

Unemployment rate (in percent)

The European employment crisis brings to the fore short and long term challenges

Source: Eurostat

10 March 2014

6

Productivity growth in the EU has trailed that in the US already before the crisis. The gap has widened since.

Europe is falling behind in terms of productivity growth

Average productivity growth for the EU, Japan and the United States

* For comparability only EU-OECD member countries considered

10 March 2014

Outline

• The EU challenges • The Investment and Investment Finance crisis • The EIB contribution to jobs and growth

7

European Investment Bank

Investment – structural differences

Gross fixed capital formation Gross fixed capital formation

Percent of GDP Percent of GDP, 2013

Source: AMECO, 2014 Winter Forecast

10

12

14

16

18

20

22

24

26

28

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Gross fixed capital formation, current market prices, per cent of GDP

AT EU-28 OMC NMS

Forecast

0.0% 10.0% 20.0% 30.0%

EstoniaRomania

Czech RepublicLatvia

BulgariaAustria

BelgiumFrance

FinlandPoland

LuxembourgSlovakiaSwedenCroatia

SpainHungary

LithuaniaEU28

DenmarkGermanySlovenia

ItalyNetherlands

PortugalMalta

United KingdomGreeceIrelandCyprus

private public

Presenter

Presentation Notes

Investment rates held up well in Austria. The absence of an investment bust after the crisis reflect the absence of a boom before. Though investment rates are lower now than at the beginning of the previous decade, they are still the highest among the old member states. Austria stands out for the low share of public investment, which accounts for only 1% of GDP – down from 1.2% before the crisis.

Decline in gross fixed investment in the EU

10 March 2014 9 European Investment Bank

-40%

-30%

-20%

-10%

0%

10%

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

EU - Compared to avg 2008

Other investmentMachinery and equipmentNon-residential constructionResidential constructionTotal investment

-40%

-30%

-20%

-10%

0%

10%

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

EU Vulnerable Countries - Compared to the avg 2008


A different story in Austria and in the NMS

Source: Eurostat

-40%

-30%

-20%

-10%

0%

10%M

ar-0

8

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

Austria - Compared to avg 2008

Other investmentMachinery and equipmentNon-residential constructionResidential constructionTotal investment

-40%

-30%

-20%

-10%

0%

10%

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

New member States - Compared to avg 2008

Presenter

Presentation Notes

The recovery in investment in Austria is mainly driven by machinery and equipment. The contribution of residential investment is marginally positive – after declining at the beginning of the previous decade. The downturn in investment in the NMS has been led by machinery and equipment expenditures. Though non-residential construction accounted for the largest share of investment prior to the crisis, the decline in this sector has been more muted – indicating perhaps continued infrastructure deficits.

10 March 2014 11

RDI investment gap

While some MS continued to close their RDI investment gap, RDI investment growth has stalled in others

Average annual growth in R&D expenditure in 2009-2011 and R&D intensity in 2008

Source: Eurostat


R&D expenditures held up comparatively well

Source: Eurostat

-10%

-5%

0%

5%

10%

15%

20%

2000 2002 2004 2006 2008 2010 2012

Business Public Total

-10%

-5%

0%

5%

10%

15%

20%

2000 2002 2004 2006 2008 2010 2012

EU NMS Austria

Presenter

Presentation Notes

In contrast to investment, nominal R&D expenditures shrank only in 2009. The decline was mainly driven by business R&D but public R&D continued to grow in nominal terms. The NMS are the exception as public R&D also shrank in 2009. Overall, growth of R&D expenditures in the NMS is both higher and more volatile. Still, the NMS account for only 4% of R&D expenditure in the EU. On average, R&D expenditure growth in Austria has been higher than in the EU.


The impact of the crisis on investment performance

Source: Own calculations based on the Orbis database (Bureau van Dijk)

Nominal annual returns on investment by non-financial corporations in the EU

0%

3%

6%

9%

12%

15%

2005-2007 2008-2011


The most immediate cause of the investment decline has been uncertainty

Source: Baker, Bloom, and Davis at www.PolicyUncertainty.com and Eurostat

Annual rate of change of business fixed investment against an index of economic policy uncertainty (1997-2012)

-20%

-15%

-10%

-5%

0%

5%

10%

50 70 90 110 130 150 170 190

2009

10 March 2014


Finance is not a problem across the board, but it is a serious constraint for some firms

Source: Eurostat

Investment and savings by non-financial corporations in the EU (in EUR bn)

-400

0

400

800

1200

1600

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gross savings Net lending (-) / borrowing (+)Net capital transfers Gross fixed capital formation


On aggregate, Austrian firms are becoming net borrowers again

Source: Eurostat

Investment and savings by non-financial corporations in Austria (in EUR bn)

-10

0

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gross savings Net lending (-) / borrowing (+)Net capital transfers Gross fixed capital formation

Presenter

Presentation Notes

Austrian firms were net-lenders only in 2010

10 March 2014 17

Correlation between national investment and saving rates

15%

20%

25%

30%

35%

10% 15% 20% 25% 30%

Inve

stm

ent r

ate

Saving rate

2002-2007

15%

20%

25%

30%

35%

0% 10% 20% 30% 40%In

vest

men

t rat

e

Saving rate

2008-2011

Source: Wagenvoort and Torfs (2013) in Investment and Investment Finance in Europe, EIB Publication.

Before the crisis, financial markets of the EU were fully integrated, as measured by the independence of investment rates from saving rates. The crisis has reversed this development and made national borders within the EU obstacles again.

Financial fragmentation - the crisis has led to a collapse in intra-EU capital flows

10 March 2014 18

Source: Commission – ECB surveys on SME finance

Diverging access to finance conditions for SMEs

…leading to the availability of credit to SME varying significantly across the membership

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cyp

rus

Net

herla

nds

Gre

ece

Lith

uani

a

Spai

n

Italy

Mal

ta

Rom

ania

Slov

akia

Cze

ch R

epub

lic

Portu

gal

EU UK

Den

mar

k

Hun

gary

Irela

nd

Bulg

aria

Esto

nia

Fran

ce

Belg

ium

Pola

nd

Finl

and

Aust

ria

Swed

en

Latv

ia

Slov

enia

Ger

man

y

Luxe

mbo

urg

Cro

atia

DK/NAApplied but refused because cost too highApplied and got most of it [BETWEEN 75% AND 99%]Applied and got everythingApplied but only got a limited part of it [BETWEEN 1% AND 74%]Applied but was rejected


Main policy implications

Resolving uncertainty needs commitment and rapid progress on the EU institutional reform, including the Banking Union Public policy should seek to enhance bank lending and alternative finance sources where there is evidence of financing gaps Last but not least, with some countries suffering from persistently low investment returns, structural reforms that encourage a shift of resources to more productive activities need to be continued

Outline

20

• The EU Challenges • The Investment and Investment finance crisis • The EIB contribution to jobs and growth

10 March 2014

The EUROPEAN INVESTMENT BANK at a glance

• Providing finance and expertise for sound and sustainable investment projects – EUR 512.5 bn loan book in 2013

• Natural financing partner for the EU institutions • Shareholders: 28 EU Member States • Largest multilateral lender and borrower in the world

• Raise our funds on the international capital markets • Pass on favourable borrowing conditions to clients

• AAA-rated and strong capital base • More than 400 projects each year in over 160 countries • Key products:

10/03/2014 European Investment Bank Group European Investment Bank Group 21

10/03/2014 22 European Investment Bank Group

2012/2013 - Total lending and staffing

Peer group of MDBs whose areas of operation include Europe

Notes: EIB accounts as at 31 December 2013. World Bank and IFC accounts as at 30 June 2013. EBRD accounts as at 31 December 2012. Loan portfolios are normally net disbursed loans. The IFC Portfolio (only) also includes equity investments. *IBRD only

23 European Investment Bank Group

2013 Borrowing activity

10/032014 23 European Investment Bank Group

EUR 72bn: distribution of EIB bond issues by region


Pre-accession Countries include: Candidate Countries: Iceland, the Former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey. Potential Candidate Countries: Albania, Bosnia and Herzegovina, Kosovo*.

Lending (signatures) in 2013: EUR 71.7bn

10/03/2014 European Investment Bank Group 24


Signatures and disbursements

10/03/2014 European Investment Bank Group 25

Growth and jobs


Loans for SMEs & Midcaps


‘Investing for Youth’ – EUR 9.1 billion, July-Dec 2013


Investing in INNOVATION


Investing in Energy

• 2013 Total in EU & Pre-accession – 10bn (focus on RE & EE)

EIB finances: • Sustainability through RE sources to reduce emissions

and dependence on finite energy resources • Competitiveness to create a genuine European single

energy market to boost efficiency and control consumer prices

• Technology to support energy-related research, development and innovation

• Supply security through diversification, particularly with indigenous sources to cut the risks from dependence on external supplies.



Building Europe’s infrastructure

2013 in EU & Pre-accession: €11.6bn for transport projects(incl. TEN-T - favouring rail over roads) €4.2bn for urban renewal New tool – Project Bond (2 projects in 2013)

Responding to the EU challenges


33

In one of the most advanced economies in Europe, the EIB can particularly add value by: • financing select projects that strengthen Austria’s ability to innovate by reallocating resources towards

high-tech sectors and supporting innovative SMEs; • financing TEN-T priority projects. Owing to its central location, Austria is part of six of these projects; • supporting the re-orientation of the Austrian health sector; • cooperating in national priority areas such as energy efficiency and • increasing support to viable projects of Austrian companies and banks in Central and Eastern Europe.

EIB exposure in Austria is EUR 11.9bn or 3.9% of GDP (EU average exposure is 3.6% of GDP). The EIB signed of EUR 2.45bn in 2013, a 133% increase over 2012, predominantly in the SME/midcap, transport, energy, health and education sectors.

The EIB in Austria

% of total exposure % of GDP

EIB's activity by sector - AustriaExposure, Dec-2013 Signature flow

Source: EIB

0%

20%

40%

60%

80%

100%EU AT

Austria exposure: EUR 13.5bn, 4.3% of GDP

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2006

2007

2008

2009

2010

2011

2012

2013

SMEs & intermediatedOther manufacturingAutom & transp equipRef, Mining, QuarryingAgric, foodServicesHealth,socialEducationTelecommunicationsComposite infrastructureWater, sewageUrban infrastructureUrban,inter modal tr.Other transp.Air transportSea transportRoads, motorwaysRailwaysEnergyEU Average

10 /03/2014

Presenter

Presentation Notes

SME access to Trade Finance: roll-out the EUR 500m Greek pilot trade finance facility on a broader geographical basis (Cyprus EUR 150m approved in 2013; discussions for Portugal & Ireland ongoing) MidCap Research Development and Innovation (RDI) under RSFF: direct loans to MidCaps (Growth Financing Initiative ”GFI” - EUR 150m pilot - first operations signed in 2013) and portfolio guarantees (MidCap Initiative “MCI” - appraisal of first operations ongoing) Youth employment: boost “Jobs for Youth” across the EU by improving access to finance for SMEs that employ young people Ex-ante assessments of financing needs & market gaps (e.g. SME Initiative, trade finance, Vienna Initiative - bank lending survey in central and south eastern Europe)

34

In a challenging and varied economic environment, the EIB can particularly add value in CESEE by: • Co-financing with EU funds priority projects and regional/municipal development • Facilitating access to finance for SMEs and corporates • Contributing to ongoing reform and modernisation of the energy network infrastructure, the switch

towards renewable energy resources and fostering energy efficiency • Promoting productivity and competitiveness through R&D initiatives and ICT infrastructure • Advisory services (particularly in transport/ water/wastewater/waste/)

EIB exposure in CESEE is EUR 87.4bn or 7.8% of GDP (EU average exposure is 3.6% of GDP).

The EIB in CESEE (NMS and other Balkans)

EIB's activity by sector EIB's activity by contract counterpart (borrower) for operationsExposure (Dec 2013), % of total Exposure(Dec 2013), % of total

0%

20%

40%

60%

80%

100%EU

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2006

2007

2008

2009

2010

2011

2012

2013

(Fcs

t) 2

014

SMEs & intermediatedOther manufacturingAutom & transp equipRef, Mining, QuarryingAgric, foodServicesHealth,socialEducationTelecommunicationsComposite infrastructureWater, sewageUrban infrastructureUrban,inter modal tr.Other transp.Air transportSea transportRoads, motorwaysRailwaysEnergyEU Average 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

EU

Monetary and financialintermediaries

Corporate

Project finance

Sub-sovereign

Sovereign

Not documented

Signature flow, % of GDP

NMS exposure: EUR 87.35 bn, 7.78 % GDP

10/03/2014

Presenter

Presentation Notes

SME access to Trade Finance: roll-out the EUR 500m Greek pilot trade finance facility on a broader geographical basis (Cyprus EUR 150m approved in 2013; discussions for Portugal & Ireland ongoing) MidCap Research Development and Innovation (RDI) under RSFF: direct loans to MidCaps (Growth Financing Initiative ”GFI” - EUR 150m pilot - first operations signed in 2013) and portfolio guarantees (MidCap Initiative “MCI” - appraisal of first operations ongoing) Youth employment: boost “Jobs for Youth” across the EU by improving access to finance for SMEs that employ young people Ex-ante assessments of financing needs & market gaps (e.g. SME Initiative, trade finance, Vienna Initiative - bank lending survey in central and south eastern Europe)


Thank you.

eu challenges, investment and investment finance …...10 march 2014 1 eu challenges, investment and...

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