Overview of the EU industrial sector

Transcription

1 Overview of the EU industrial sector This note describes the current state of EU industry based on a selection of indicators. Aiming to feed into the discussion on the future industrial strategy, the note highlights both strengths and challenges in the near future for the EU. State of industry: an overview The share of Manufacturing in total value added was 16.2% in 2016, and is on a slightly increasing path following the crisis. In this context it should be noticed that: - Manufacturing value added is increasing in absolute terms. - Manufacturing goods have become cheaper, particularly in relation to services. This is a positive achievement, but it obviously leads to a reduction in the relative weight of manufacturing. - The trend of servitisation, through which manufacturing firms have increased their competitiveness, is not visible in the data due to statistical limitations. Given the potential importance of this phenomenon, more research is urgently needed to adapt our statistical framework and monitor developments and innovations in the service sector. The employment share of manufacturing has steadily declined, reaching 14.5% in While this trend is possibly due to different phenomena, including automation and outsourcing of parts of the production processes outside the EU, employment in other sectors grew faster between 2005 and 2015, decreasing the relative importance of manufacturing. 1

2 Single market and empowering people The integration path The functioning of the single market for goods is continuing to improve. In 2016, intra-eu28 trade constituted more than 50% of overall trade by the EU28. With the exception of the UK, this holds for all Member States. While, due to their nature, services are less tradable than goods, the EU is slowly starting to tap into the full potential of intra-eu28 trade in services. Due to the four freedoms of the Single Market, we would expect price dispersion across Member States to decrease over time. A potential reason for concern is therefore that we still observe a slowly increasing degree of price dispersion across Member States, especially since the financial crisis. 1 While many factors can contribute to this phenomenon, this indicator suggest that some important barriers in the Single Market might still need to be addressed by future policies. 1 Purchasing power parities (PPPs), price level indices and real expenditures for ESA 2010 aggregates. Dispersion is calculated as sd(pli)/mean(pli) for each product/service and year, where PLI is a price level index (EU28=100 each year), sd() is weighted standard deviation and mean() is weighted mean, where weight is expenditure volume (in PPS_EU28) 2

3 Internal demand Several European Member States have experience low growth in GDP per capita (purchasing power adjusted) in the period , compared to the pre-crisis period While growth has accelerated in the period , we are still far from the growth level experienced in the first years of this century. In the long run, sustained low growth rates might negatively affect internal demand and hence the opportunities for firms to increase sales in the internal market. Real wages in manufacturing have increased in most Member States in the period However, few countries experienced significant decreases. While this can be seen as a temporary adjustment to competitive pressure, it might have important social and political consequences. 3

4 Upgrading our industry Innovation While innovation is difficult to measure, the expenditure on research and development is widely used as a proxy to measure the innovation effort (input). In terms of total share of R&D in overall gross domestic expenditure, it is apparent that the EU28 is still lagging behind other major economies and that spending has been stagnating since The investment gap is similar for the private sector, with EU28 businesses accounting for roughly two thirds of the US GDP share, and a half of Japan s share. Another concern is that this innovation effort in the EU28 is mostly driven by Northern European Member States such as Sweden, Germany, Denmark and Finland, while many Southern Member States have very low levels of spending. Digitalisation Advancing digitalization is a key development for the EU industry. The Digital Economy and Society Index (DESI) summarises relevant indicators on Europe s digital performance, and tracks the evolution of EU Member States in digital competitiveness. It scores performance on five dimensions: connectivity, human capital/digital skills, use of internet by citizens, integration of digital technology by businesses, and digital public services. Similar to the findings in terms of R&D expenditures, there seems to be a divide between Northern and Southern/Eastern Member States. 2 One has to be cautious in comparing the EU28 figures with the USA since the methodologies used to create this figures are slightly different. 4

5 Skills Education is extremely important in a fast changing technological environment. Especially in the aftermath of the last recession, workers with the lowest qualification had a much harder time to find a new job compared to workers with medium or high education. The situation for the relatively lowskilled is especially severe in manufacturing. Data from the European Jobs Monitor by Eurofound shows that between 2011 and 2016 there was a significant employment shift towards the employment of highly educated workers. In some Member States, this might result in a shortage of qualified personnel in manufacturing. 5

6 Investing in the industry of the future Investment in the EU28, as measured by gross fixed capital formation (GFCF), has steadily increased during the last years. The corporate sector is leading the recovery after the sharp drop suffered in In contrast, general government investment has stagnated. Public investment levels in the EU and the US are very similar. However, as a share of GDP, investments have been growing only since 2013 in the EU28, at a very slow pace. They are still significantly below their pre-crisis level. Within the EU, intellectual property products have become one of the main drivers of investment, almost doubling between 2000 and ICT equipment, despite its small magnitude, has displayed significant growth rates in the most recent years. Investment in physical capital (machinery and other buildings and structures including roads, bridges, airfields, dams, etc.), with the exception of transport equipment, has been stagnating at pre-crisis levels. 6

7 Europe s leadership in low carbon and circular economy Circular economy Extra-EU exports and imports of recyclable raw material are on a declining path. Declining prices of waste contributed in part to this declining trend. However, the EU28 still exports significant quantities of some particular waste. The recent waste import restrictions introduced by China might require a fast adaptation of European waste policies, particularly for what concerns plastics. The recycling rate of municipal waste has steadily increased in the last years. However, it still varies substantially across Member States, suggesting that more investments is needed, but also that there is still a large amount of untapped resources for the circular economy. 7

8 Low-carbon transition Despite the growth in terms of output experienced in the EU28, total greenhouse gas emissions decreased, suggesting that the EU economy has become less emission intensive over time. Indeed, greenhouse gas emissions in terms of industrial processes and product use have decreased by 17.3% in the period The improvement is also confirmed by the reduction in energy consumption by 17% in industry in the period , a decrease larger than in other sectors. 8

9 International dimension The EU28 is highly competitive internationally. Since 2010, extra-eu28 exports of goods have been growing steadily in absolute terms. The faster growth in GDP since 2013 explains the slight decrease in the export share. In 2016, exports from the EU28 constitute more than 15% of the world market for exports of goods, second only to China. However, few Member States account for the major share of exports. For example, Germany alone is responsible for almost 30% for all EU28 exports. While this partially reflects the size of each economy, it also indicates that Member States differ in international competitiveness and that there is a risk of macroeconomic imbalances. 9