ECB policy supportive of innovation - ING

For a long while, investment had been the missing jigsaw piece in the Eurozone recovery puzzle and have finally gained momentum, contributing to the surprisingly strong growth performance of the entire Eurozone, according to analysts at ING.

Key Quotes

“The often criticised QE programme has gradually made its way into the real economy. In fact, low interest rates have been more supportive of investments in intellectual property than in construction. Also, the ICT investment recovery has gained momentum. These are all pieces of evidence that the ECB’s QE programme is not only growth supportive but also fostering the structural transition of the Eurozone economy.”

“Unlike many of the years since 2008, it appears that Eurozone policymakers might secretly hope that this year will never end. 2017 has been the year of strong growth revival. It has seen a recovery that has broadened across countries and sectors, on the back of stronger fundamentals, fading exit fears and ultra-loose ECB monetary policies. This recovery currently seems to get better by the day.”

“For a long time, investments were the missing piece in the strong Eurozone recovery. Even this has changed this year. Investments have contributed c.0.6ppt to quarterly GDP growth in the first three quarters of the year and previous estimates of investments in recent years have been adjusted upwards. Since 1Q13, investments have increased by a total of 16.8%.”

“The fact that investments have yet to recover is mainly because of the weak recovery in southern European economies. Huge declines during the crisis have yet to be made up for in Spain, Portugal, Greece and Italy. This is despite the fact that most of the periphery countries have recently seen positive developments in investments.”

“Contrary to received wisdom, the investment recovery is not mainly the result of more construction activity. In fact, the asset classes experiencing the largest investment growth are intellectual property and ICT equipment. However, this innovation and digital boost is not spread equally across all Eurozone countries. The more digital economies are also the ones that receive the most ICT equipment investment. The gap between leaders and laggards is widening, not narrowing.”

“Even though it is hard to derive a single causality between the ECB’s QE programme and the pick-up in investments, particularly investments in high technology, available data suggest that the ECB has given a helping hand to the urgently needed digitalisation in the Eurozone.”

“It is clearly not the ECB’s task to solve all the structural problems of the Eurozone. While many think that the extreme monetary stance only creates problems, the boost it gives to R&D investments in the Eurozone should not be ignored. Who could have thought that an organization as old-fashioned as the ECB could be supportive of state-of-the-art investment?”