alfexe/iStock via Getty Images Originally published on July 9, 2024 By Bert Colijn Like in the US, investment is underperforming in the Eurozone. Investment (gross fixed capital formation) is about 10% below where it would have been had it followed the pre-pandemic trend, and keep in mind that the trend was already very weak before the pandemic started. Unlike the US, the Eurozone suffered from an energy crisis, which explains to a large extent the divergence in economic developments after the pandemic.
Still, the weak investment performance in the Eurozone cannot be explained by the energy crisis and energy uncertainty alone. For a region that needs to overhaul defence spending, requires an urgent energy transition, and faces structural labour shortages, shouldn't investment be higher? 1 - Weak demand and a bleak outlook push investment below trend For the Eurozone, weak investment seems to make more sense than in the US. The economy recovered less quickly from the pandemic, and Eurozone industry is going through a much larger correction than in the US.
With industry being particularly capital intensive, it is easy to see why investment needs at this point are relatively low. Capacity utilisation in the Eurozone has been steadily declining since the first quarter of 2022 and is currently at 78.9%, well below the historical average of 80.
8%. Part of this decline can clearly be attributed to the energy crisis since the start of the Russian invasion of Ukraine. With supply exce.