Firms’ assessment of the longer-term consequences of the pandemic
Source: EIBIS 2020.
About 20% of all firms estimate that the job cuts they made during the pandemic will be permanent. This share is constant across the European Union and in the United States. The aggregate effect of such a shock will be felt differently across the various countries, depending on their labour market institutions (Nickell, 1997). Economies whose labour markets are highly regulated may see a significant increase in structural unemployment, which could last for several years. While structural unemployment may not increase much in countries with more flexible regimes, a significant reduction of employment remains a challenge.
Infrastructure investment
Following a decade of contraction, the share of infrastructure investment in overall economic activity has been increasing since 2018 (Figure 17). The government and corporate sectors combined account for some 90% of EU infrastructure investment. While their shares are broadly equal, it was the corporate sector that provided the impetus for the recovery from the global financial crisis. The government sector’s share of infrastructure investment, on the other hand, contracted severely in 2016 when it barely attained 42% of overall infrastructure investment activity. In 2017 and 2018, it contributed to the recovery of infrastructure investment, with its share rising to 44%.[11] The share of project-based infrastructure investment remains just shy of 10% after a rebound in 2017. Previously, its share had steadily contracted from a high of some 16% in 2011 to a low of 8% in 2016. About two-thirds of projects are not carried out as a public private partnership (PPP). Since 2011, the aggregate value of PPP investments has declined steadily, whereas the aggregate value of non-PPP projects declined more forcefully through 2016 and have steadily risen since.
Figure 17
EU infrastructure investment by sector (% GDP)
Source: EIB calculations, European PPP Expertise Centre (EPEC), Eurostat, IJ Global.
Note: Annual infrastructure investment in EU27 by institutional sector as a share of GDP, expressed as a percentage. Infrastructure projects are either PPP or non-PPP. The remainder is split between government and corporate investment; for 2019, data to calculate the government component are not available at the time of publication. Relevant data series are not published for Belgium, Croatia, Lithuania, Poland or Romania. Slight deviations from the 2018 results are due to a refinement in the estimate of depreciation of infrastructure investment, as well as the Brexit-induced recomposition to EU27.
In terms of asset type, investment in communications infrastructure has been the most dynamic component of the rebound. Education and transport infrastructure investment provided further support (Figure 18). Transportation and utilities constitute some 60% of infrastructure investment assets. Though broadly equal in parts, the share of utilities has been declining steadily since a high of 33% in 2013, reaching a low of 27% in 2019. The share of social infrastructure assets in health and education is fairly stable, constituting about one-third of investment; typically, health accounts for about 60% of this though education steadily increased its share from 39% in 2016 to 43% in 2019. The smallest and most volatile share of infrastructure investment is attributable to communications. In 2019, it accounted for just over 7% of infrastructure investments.
Figure 18
EU infrastructure investment by asset class (% GDP)
Source: EIB calculations, EPEC, Eurostat, IJ Global.
Note: Annual infrastructure investment in EU27 by infrastructure asset as a share of GDP, expressed as a percentage. Data missing for Belgium, Croatia, Lithuania, Poland and Romania. Where data are not yet available, the sector share is assumed constant – this is generally the case for 2019 with Spain, Italy, Cyprus and Portugal, the areas of education, health and transport in the Netherlands, as well as with Denmark generally for 2018 and 2019. Slight deviations from the 2018 results are due to a refinement in the estimate of depreciation of infrastructure investment as well as the Brexit-induced recomposition to EU27.
Following a decade of a highly uneven contraction, the recent EU rebound has seen Southern Europe falling further behind. Central and Eastern Europe as well as Southern Europe led a decade-long contraction in EU infrastructure investment’s share of GDP, which bottomed out in 2017. Driving the revival is a rebound in Western and Northern European Member States, where the share of investment in GDP reached 1.8% in 2019, exceeding pre-crisis peak levels. Throughout 2018, the bulk of the increase was carried by the corporate sector, with support from government investment, while private sector projects provided some marginal dynamism. In 2019, Central and Eastern Europe provided further impetus to the revival, with the share of infrastructure investment in GDP reaching 1.9% in 2019, more than half of the pre-crisis highs. Here, government activities have become the mainstay of infrastructure investment, accounting for nearly two-thirds of 2018 volumes, whereas the corporate sector continues to wane, accounting for merely one-third. Projects have dwindled to barely 3% of infrastructure activity. It remains to be seen how the closing of the EU budget cycle will affect investment in the coming years and whether the predominant position of government investment will continue. In Southern Europe, government investment provided some tentative stabilisation in 2018 and the overall share in GDP increased to 1.12% in 2019, here again just over half of the pre-crisis level. Non-PPP projects have more than doubled since 2016 to 0.12% of 2019 GDP.
Figure 19
Regional shares of infrastructure investment by asset class
Source: EIB calculations, EPEC, Eurostat, IJ Global
Note: Shares of infrastructure investment by infrastructure asset and by EU27 region in 2019 expressed as a percentage. Regions are Western and Northern, Southern, and Central and Eastern. Data missing for Belgium, Croatia, Lithuania, Poland and Romania. Where data are not yet available, the sector share is assumed constant – this is generally the case for 2019 with Spain, Italy, Cyprus and Portugal, the areas of education, health and transport in the Netherlands as well as with Denmark generally for 2018 and 2019. Slight deviations from the 2018 results are due to a refinement in the estimate of depreciation of infrastructure investment as well as Brexit-induced recomposition to EU27.
Communications’ share of infrastructure investment has remained elevated since 2015 (Figure 19). In Western and Northern Europe, three-quarters of infrastructure investment is accounted for in broadly equal measures by utilities, transport and health; the remaining quarter is dominated by education, with communications representing 7%. Transport and utilities constitute around three-quarters of investment for both Central and Eastern and Southern Europe. In Central and Eastern Europe, the bulk of the remainder is dedicated to education. In Southern Europe, communications remains the third-largest sector, with a share in excess of 10% of overall infrastructure investment, well ahead of the corresponding shares elsewhere, whereas the shares of education, health and utilities have dipped below their average in recent years. Considering their relatively small size, health and education represented a disproportionate share of the decade-long contraction in infrastructure investment in Southern Europe.
PPPs in the European Union remain concentrated in Western and Northern European Member States, with a continued decline in the number of projects reaching financial close[12] accompanied