According to figures from Eurostat, the business investment rate in both the EU (new data) and the Euro-zone (unchanged from the first release two weeks ago) improved from the historical lows seen in the 2nd quarter of 2024.  However, the rate of profitability only ticked up in both regions and both measures are still at relatively low levels.

The seasonally adjusted investment rate for non-financial corporations in the EU rose to 22.5% (from an historic low of 22.0% in the 2nd quarter), with the Euro-zone figure improving to 21.9% (from 21.4%).  However, both figures remain lower than a year earlier (Q3-23) when they stood at 22.8% and 22.2% respectively.  It should also be noted that the Q2-24 numbers were the lowest recorded since Q1-2014 in both cases.

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 improvement in the investment rate was generated by business gross fixed capital formation (+3.7%) rising at a faster pace that gross value-added (+1.4%).

The seasonally adjusted profit share of non-financial corporations edged up by 0.1 points compared to the 2nd quarter figure to 39.3% in the EU and 38.8% in the Euro-zone.  Again, these are historically low levels of profitability and, ignoring the pandemic affected figures in the first half of 2020, the 2nd quarter numbers were the weakest since the 2nd quarter of 2019.

The profit share of non-financial corporations is defined as the 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 marginal increase in the business profit share was due to “business gross value added” (+1.4%) growing slightly faster than “business compensation of employees (wages and social contributions) plus taxes less subsidies on production” (+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/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.

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