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Increasing EU industries, challenges and opportunities- focus on access to finance James Watson, Director Economics Brussels, 12 November2014 Outline • Importance of manufacturing • Access to finance situation • BUSINESSEUROPE access to finance priorities Industry as backbone of the economy Direct and indirect employment in the manufacturing sector (2012) in 1000 Source: Eurostat (2013), WIOD (2013), calculations by IW EU is losing global manufacturing share Share of global manufacturing value-added Source: UN (2013), OECD (2013), Eurostat (2013), calculations by IW Manufacturing and Employment well below pre-crisis levels EU Manufacturing Output & Employment in 2000-2013 (2000 = 100) 120.0 115.0 Output 110.0 Employment 105.0 100.0 95.0 90.0 85.0 80.0 75.0 70.0 Recommendations for an industrial compact Industrial competitiveness throughout all policy areas ECONOMY ENERGY AND CLIMATE SINGLE MARKET EMPLOYMENT ENTREPRENEUSHIP TRADE Bank loans to corporations have fallen Euro Area bank loans to non financial corporations, July 2012 = 100 104 102 100 98 96 94 92 90 2008 2009 2010 2011 2012 Result of both demand and supply factors 2013 2014 Corporate bond issuance has risen Bonds outstanding of euro area nonfinancial corporations, July 2012 = 100 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 2008 2009 2010 2011 2012 2013 2014 Financial fragmentation has eased slightly Standard deviation of bank lending rates to nonfinancial corporations in Euro Area (ECB) 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2005 2006 2007 2008 2009 2010 2011 2012 Eg 3% Germany, Austria, 4% Portugal, > 5% Greece 2013 2014 5 Priorities for access to finance • • • • • Complete banking union Right balance on prudential regulation Attractive tax environment – no FTT Use public funds to leverage private – EIB Alternative financing routes The EU continues to lag on Venture Capital funding Venture capital funding (%GDP), 2011 (most cases) 0.18 0.16 0.14 0.12 0.10 0.08 0.06 0.04 0.02 0.00 USA UK Canada Germany Spain Italy Japan EU France But VC investors may be acting rationally... Average US and UK fund performance Source: Nesta, Unchaining Investment Conclusion • Access to finance problems damaging growth and jobs • Likely to become increasing constraints • But investment and growth needs an attractive business environment • High policy uncertainty an issue • High costs of doing business in EU – regulation, energy, tax labour costs