Is Eurozone Encountering a Deep Investment Crisis?

Businesses are delaying some of their investments in the Eurozone, and output is declining. Two recent reports from the ECB provide an assessment of the issue. The majority of Eurozone businesses are delaying investments. The European Central Bank refers to a “gloomy outlook and a historic low” in its most recent economic report.

Central bankers anticipate that this year will see more resistance. Studies revealed that even historically (except for during times of crisis), there were few intentions to invest in the industrial sector.

By the end of 2023 at the latest, surveys would have indicated a rise in investments for replacement and rationalization. Stasis is now taken for granted. On the other hand, it had been clear for some time that expenditures in capacity expansion were declining.

According to an EU Commission poll, the ECB projects that by 2023, this manufacturing sector share will have dropped to just 20%. That represents a 20 percentage drop from the pre-pandemic average.

Investments made by businesses are considered as a guarantee of future growth and as essential to the general development of the economy. Either because they allow for growth and increased output. Alternatively, because they foster innovations that create new opportunities for markets or increased productivity. Investing is ultimately a guarantee that a place is progressively modernizing for the industrial base of the future.


The recent crises have been cited by the ECB as the cause of the low investment inclination. In 2023, business investment in the euro area would have been drastically decreased due to the pandemic, the energy crisis with its massive price rises, and the tightening of financing conditions that followed.

Energy Cost

In example, high energy costs have shown to be the largest long-term barrier to investment in Europe, according to the ECB. Investment is slowed down as a result.

According to the ECB report, 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, even though the recent crisis in many sectors may continue to require additional investments in the future to reduce energy dependence.

Need for Action

Moreover, increased investment would be consistent with the EU Green Deal. According to the EU Commission’s most recent inventory, the EU would need to reach its longer-term CO2 target by requiring at least 1.5% more of GDP (gross domestic product) to be invested annually than it did from 2011 to 2020.

Geographical Disparities

Between the nations that make up the Eurozone, there is also a significant difference. Germany’s investment intentions are essentially flat, whereas they are sharply rising in Slovakia, Spain, Italy, and Portugal.

The Eurozone is seeing an increase in digital technology investment. However, the ECB cautions that there is still a “huge gap compared to the United States in terms of the use of big data, artificial intelligence (AI), and the patenting of new technologies.”

Employment and Productivity:

High investment rates typically boost process productivity and enable businesses to compete more successfully. The crisis in investments is also causing a decline in productivity. However, the ECB clarifies in a different study that there are more causes for this. Productivity growth has sharply reduced since the pandemic: Since the fourth quarter of 2019, average productivity per employee has decreased by 0.2% annually, as opposed to the 0.8% annual average rise before to the coronavirus.

Finding work throughout the crises helped with this, according to ECB studies. Employment increased as a result of higher profit margins, lower real salaries, a fast rise in the number of employed individuals, and low average hours worked.

But now that real wages are rising and profits are down, these variables are becoming less significant. Therefore, further labor market gains would only be possible if productivity started to increase again, which is unlikely to happen without further funding.