Eurostat has updated its figures on investment and profitability for the Euro-zone and released the estimate for the whole of the EU. Both the business investment and profitability rates declined in the EU and the Euro-zone with the former at the lowest level since Q1-2015 and the latter since the pandemic.
The investment rate for non-financial corporations in the Euro-zone in the 2nd quarter fell to 21.3% (from 22.2% in Q1-24) and for the EU it stood at 21.9% (down from 22.5%). As noted above, this is the lowest investment rate for both the EU and the Euro-zone since the start of 2015 – during the pandemic it increased because investment did not fall as rapidly as gross value added.
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. This series can be distorted by imports of intellectual property products reflecting the impact of globalisation. The decline in the investment rate was because business gross fixed capital formation fell sharply while there was a modest increase in gross value-added.
This was accompanied by a fall in the profit share of non-financial corporations; for the Euro-zone it went from 39.1% in the 1st quarter to 38.7% in the latest period with the EU moving from 39.6% to 39.1% on the same basis. For the EU, with the exception of the two “covid quarters” (Q1 and Q2 of 2020), this is the lowest rate since the 1st quarter of 2013 – the Euro-zone saw a lower rate in Q2-2019.
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 ratio of the share of wage costs (plus other taxes minus other subsidies on production) in value added. The fall in the business profit share was due to “business compensation of employees (wages and social contributions) plus taxes less subsidies on production” rising more rapidly than the growth in gross value added.
You can get the full details from the Eurostat News Release which can be downloaded from their website at https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Quarterly_sector_accounts_-_non-financial_corporations (open the full article by clicking on the + sign where indicated towards the bottom of the page) or request it from MTA.