European Investment & Profitability, 4th Quarter 2023: Eurostat has published data on the investment rate and profitability although, bizarrely, this is mixed up in a report which is headlined to be about the household saving rate. Note, also, that this data is only for the Euro-zone and does not include any country analysis.
The investment rate for non-financial corporations in the Euro-zone fell marginally from a downwardly revised value of 22.6% in the 3rd period of the year to 22.5% in Q4, and it is slightly lower than the 22.7% that was recorded in the 4th quarter of 2022. The gross investment rate of non-financial corporations is defined as gross fixed capital formation divided by gross value added – this ratio relates investment in fixed assets (buildings, machinery etc.) to the value added created during the production process. The fall in the investment rate was because business gross fixed capital formation increased by +0.7% but this was slower than the rate of growth of gross value-added which increased by +1.2%.
The profit share of non-financial corporations in the Euro-zone declined to 40.3% in the final quarter of 2023 – this compares to an upwardly revised fell figure of 40.3% in the previous quarter and 41.5% a year earlier. The profit share of non-financial corporations is defined as gross operating surplus divided by gross value added. This shows the share of the value added created during the production process remunerating capital and it is the complement of the share of wage costs (plus other taxes minus other subsidies on production) in value added. The lower level of business profit share is explained by business compensation of employees (wages and social contributions) plus taxes less subsidies on production rising more rapidly (+1.6%) than the growth in gross value added (+1.2%). You can get the full details from the Eurostat News Release which can be downloaded from their website at https://ec.europa.eu/eurostat/news/euro-indicators (09 April – confusingly, the item appears to be about the household saving rate) or requested from MTA.