According to figures from Eurostat, the business investment rate in the EU (new data) fell to 22.0%, with the rate for the Euro-zone revised up slightly to 21.4% from the first release two weeks ago (21.3%). Profitability fell back slightly in both the EU and the Euro-zone compared to the 3rd quarter of 2024.
The seasonally adjusted investment rate for non-financial corporations in the EU stood at 22.0% in the 4th quarter of 2024. Apart from the 2nd quarter of last year when it was at the same level, this is the lowest since the 1st quarter of 2015. Similarly, for the EU, the rate of 21.4% matches that seen two quarters earlier but, otherwise, is the lowest since the start of 2015.
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. In both cases, the lower ratio came because business gross fixed capital formation decreased while gross value-added rose.
We see a similar pattern for the profit share of non-financial corporations’; this fell compared to Q3-2024 for both the EU (to 39.3%) and the Euro-zone (to 38.6%) – the former was the same level as in the 2nd quarter of last year but the Euro-zone figure was the weakest since the pandemic period in the first half of 2020.
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 fall in the business profit share was due to “business gross value added” growing more slowly than “business compensation of employees (wages and social contributions) plus taxes less subsidies on production”.
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.