Business investment: Software outpaces bricks and mortar

In France, in Q3 2024, for the first time (statistical series dating back to 1949), non-financial companies invested more (in billions of euros, at constant prices) in "information and communication" than in construction (panel A of our chart). This shift was bound to happen sooner or later, given the trend towards intangible investment (in which "information and communication" is the main item). In particular, this growing weighting goes hand in hand with the increasingly widespread use of electronics and software in today's goods, including in traditional sectors such as the automotive industry.

This phenomenon can also be observed elsewhere in Europe, even though the data there are grouped differently and do not provide the same level of detail. Panel B compares investment in new construction excluding housing with investment in intellectual property products (IPP). In Q2 2024, investment in IPP is just below investment in construction in many countries, and even exceeds it in Germany. In Germany, however, while IPP are already dominant, it is mainly because investment in new construction excluding housing is low, and has been lower than in France since 2019, despite a much higher GDP.

In fact, investment in IPP in France is only 6% lower than its German counterpart, compared with a gap of almost 29% in terms of GDP (in real terms). France is also significantly ahead of Italy and Spain in this type of investment (French investment in IPP is almost 2.2 and 3 times higher, respectively, compared with French GDP, in constant euros, which is almost a third higher than Italian GDP and almost twice Spanish GDP).

So much so that the old adage "when the construction sector does well, so does this economy" could now be joined by another: "when (French) tech does well, so does the economy". One thing is certain: investment in software should continue to grow, alongside the increasing number of uses that it is expected to fulfil. It should therefore be less cyclical than investment in construction. In addition, as software depreciates faster than buildings, it will need to be renewed more frequently, which will reinforce the trend towards supporting business investment: a structural determining factor of French growth that is set to remain so in the years ahead.

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