Monthly note on industrial policy indicators and analysis
SPECIAL FEATURE: INNOVATION AS AN ENGINE OF GROWTH
Manufacturing production plunges in August, uncertainty for the near future continues
In August, manufacturing production decreased significantly both in the EU as a whole and, more so, in the Eurozone (-1.7% and -2.1%, respectively). Lead indicators suggest that this might not be a short term development and that a disappointing performance can be expected for the remainder of this year. The fall in manufacturing production with respect to the previous month and with respect to the production figures of August 2013 suggests a possible break in the trend of the relative recovery that EU industry experienced from mid-2013 until the first half of this year.
Decreased external demand may have been causing the fall in the demand for manufactured goods. The lack of internal demand capable of replacing faltering external demand is a matter of increasing concern. The subdued world growth forecasts for the coming two quarters add to the discouraging outlook. This highlights the need to take decisive action to implement active growth policies including growth enhancing public investment.
More targeted innovation support could translate into more growth
• Innovation is considered a key driver for economic growth. This is why EU policy promotes the adoption of new products and processes as the best way to enhance growth and jobs in Europe.
• Product innovation has a positive effect on employment growth in all phases of the business cycle, both in manufacturing and service sectors. The effects of process and organisational innovation on employment growth tend to be less significant.
• On average, over the crisis period 2008–2011, the EU has achieved a positive and counter-cyclic trend in its R&D investments. The EU’s R&D investments in real terms have grown over this period, slightly closing the gap with the United States.
• Looking at Member States innovation performance, differences are reducing once again, although at a modest rate. Difficulties accessing financial resources continue to be the main barrier to the commercialisation, marketing and distribution of innovative products and services.
• Support for innovation should focus on SMEs, as the effects on employment levels are not offset by productivity impacts, as is the case with large firms.