EU: enhancing

resiliency and inclusion

Andrea Brasili

EIB – Senior Economist

Milan, 15th June 2018

EU: enhancing resilience and inclusion • Growth is there: let’s see the numbers Three years in a row of above potential growth (and likely two more ahead) with unemployment down to precrisis levels,

competitiveness improvements

• Weak spots Greater inequality, particularly in some countries, still wide youth unemployment, or much shorter determined time contracts.

Yet unresolved issues like capital market union, and, particularly, migration policy

• The past electoral cycle Elections in Germany, France, Netherlands, Slovenia and Italy, give a much different landscape. EU needs to move further

ahead

• Brexit strains Nothing to gain, losses can still be contained, but…

• Growth is there also in quality Look at the investment dynamics, Europe is moving! At sudden the recovery in capital spending accelerated strongly. There is

still a lot that can be done on the policy side, but there are also signs that the directions taken are appropriate. EIB role.

• What is needed ahead? A fair and open discussion on how to strenghten common policy tools is needed.

Growth is there: let’s see the numbers

Source: Eurostat, EIB Econ Source: Eurostat

Growth is there: labour market

Source: Eurostat Source: Eurostat

Growth is there: competitiveness

Source: Eurostat, CPB Netherlands Average YoY

in the last 8 quarters

European Union Euro area Germany Spain France Italy United Kingdom World trade volume

4.6 4.6 4.2 3.9 3.8 4.2 3.3 3.5

Growth is there: convergence in financial conditions

Source: Bloomberg, ECB

Growth is there: forecasts Q4 Q1

EU 28 GDP YoY 2.7 2.4

QoQ 0.7 0.4

Eurozone GDP YoY 2.8 2.5

QoQ 0.7 0.4

GFCF YoY 3.2 3.6

QoQ 1.3 0.5

PCE YoY 1.4 1.5

QoQ 0.2 0.5

Import YoY 4.3 3.5

QoQ 1.5 -0.1

Export YoY 6.6 4.5

QoQ 2.2 -0.4

Gov_cons YoY 0.2 0

QoQ 1.3 1.2

2017 2018 2019 2020

GDP 2.4 2.1 1.9 1.7

CPI 1.5 1.7 1.7 1.7Source: Eurostat, ECB

Weak spots: greater inequality

Source: Eurostat

Weak spots: youth unemployment

Source: Eurostat Source: Eurostat

Weak spots: unresolved issues

• Migration policy

• Banking union, capital market union, single market for services

• Ownership of enhanced policy coordination

Migration policy

Source: Eurobarometer

The past electoral cycle

Support for EU

Source: Eurobarometer

Support for EU

Source: Eurobarometer

Support for EU

Source: Eurobarometer

Brexit Key dates ahead

12 June, 2018

MPs will vote on EU Withdrawal Bill.

28 June, 2018

EU summit, possibly including Ireland border discussion

The menu? • An arrangement in which UK trade is governed by WTO rules • The successful negotiation of a UK–EU free trade agreement (FTA) • The creation of a UK–EU–US FTA based on the proposed Transatlantic Trade and Investment Partnership (TTIP) • The creation of a US–UK FTA excluding the EU • An extended transition period during which EU and UK tariffs do not change but other non-tariff barriers to trade come into effect • The Norwegian model (membership in the European Economic Area) • The Swiss model (a series of bilateral agreements) • A customs union

Let’s go back to growth: also quality is improving

Source: Eurostat

EIB Investment survey of non-financial corporations • Unique survey addressing 12,500 firms in Europe (with 5+ employees), covering

manufacturing, services, construction and infrastructure sector

• Representativeness at high scientific standards for:

• the EU 28 (as a whole)

• each Member country (separately)

• 4 industry grouping (within each Member country – for most countries), and

• 4 size classes (within each Member country – for most countries)

• Focus on investment and investment finance and linked to balance sheet data of the firms

• Complements national surveys by offering full comparability among countries

Investment expectations

Source: EIB Investment Survey 2017

Business Competitiveness Improving the business

environment

• Differences by country and

sector

• Problems consistent over time

• Impediments are impacting

efficient allocation of resources,

firms’ capacity to react to

uncertainty and innovation

Source: EIB Investment Survey 2017

Business competitiveness:

12% more firms

expect to expand

investment

Positive outlook for firms investment, but concerns on quality of the capital stock

15% firms invested

too little in the last

3 years

Mostly resulting in concerns about quality of capital

Going forward, technological catching up and stronger economic

recovery will drive investment

Business competitiveness: Intangibles, innovation and skills

Intangibles

• Business environment improvement remains crucial

• All intangibles are important, while policy action mostly targets only R&D

• Skills

• Not only innovation, but also adoption of new technologies

What is needed ahead?

• Shared goal setting

• Sharing of good practices

These have been good recipes for successes in pushing convergence. They need to be

confirmed

• Add to the tools for structural policies

• new tools for countercyclical shocks

EFSI