The crisis and its aftermath: SMEs performance and macroeconomic - - PowerPoint PPT Presentation

The crisis and its aftermath: SMEs performance and macroeconomic policies

SMEs, Crafts and the Professions Category meeting– 2 December 2016

Lucio R. Pench Director, Fiscal policy and policy mix European Commission DG Economic and Financial Affairs

Euro area GDP: annual growth rate and cumulative change, 2008-18,

Recovery remains fragile, with slack in the economy

Employment, total hours worked, euro area

90 92 94 96 98 100 102 08 09 10 11 12 13 14 15 16 Employment Total hours worked index, 2008-Q1 = 100

Small and medium-sized enterprises (SMEs) in Europe

• SMEs form the backbone of the EU28 economy.
• In 2015, just under 23 million SMEs generated €3.9 trillion

in value added and employed 90 million people.

• They accounted in 2015 for two thirds of EU28 employment

and slightly less than three fifths of EU28 value added in the non-financial business sector.

• The vast majority of SMEs are micro enterprises with less

than 10 employees – such very small firms account for almost 93% of all enterprises in the non–financial business sector.

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Effects of the economic crisis on SMEs and their recovery

Firm growth can be associated with productivity growth

5 Figure: Labour productivity growth in EU industry by size class (N of persons employed) 2008-2014

Source: Single market integration and competitiveness report 2016, based on Eurostat data

Factors affecting SMEs' size and growth

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• Factors that are critical for SMEs growth include their

capital intensity, investment rate, access to finance, availability of high-quality workforce, etc.

• These factors are sensitive to economic policy. Research

shows that some structural reforms can have a significant impact on SMEs' growth rate.

• The design of public policies matter: their impact is

different according to the size of the firm.

• Policies recommended in the European Semester and the

Juncker Investment Plan should help increase the shares of fast growing SMEs.

Three fiscal stances

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Public spending becoming less growth-oriented

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16.25% 27.21% 56.54%

Long-term spending Other spending Welfare spending

14.97% 29.68% 55.35%

Long-term spending Other spending Welfare spending

a) 2014 b) 2000

Diverse situations across MSs and diverse responses

Euro area Fiscal Map

Note: Based on COM forecast, S1 to measure consolidation needs, 2016 output gaps for good/bad times 9

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Accommodative monetary policy in the euro area

• 3
• 2
• 1

1 2 3 4 5 6 08 09 10 11 12 13 14 15 16 17 18 % Short term Long term Short term (real) Long term (real) Short term rate: 3M Euribor; Long term rate: 10Y interest swap; forecast Short- and long-term market rates

100 110 120 130 140 150 160 170 180 190 200

• 1

1 2 3 4 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14 Apr-15 Jan-16 Oct-16

ECB policy rate, Eurosystem BS size

ECB deposit facility rate EONIA rate Eurosystem BS size (Jan 2010=100)

% Source: IHS, ECB, Commission services index

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• 3

3 6 9 12 15 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

M3 & Credit Growth

(last obs. October 2016)

MFI loans to the Private Sector (YoY) M3 YoY SA

% Source: ECB

Credit provision to private sector supported by ample liquidity and low financing costs

1 2 3 4 5 6 7 2004 2006 2008 2010 2012 2014 2016

Composite credit cost indicators (CCCIs)

CCCI of HHs CCCI of NFCs

Sources: ECB, Bloomberg, IHS, DG ECFIN calculations

Last observation: September 2016

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Receding financial fragmentation among countries and companies

5 10 15 20 25 30 35 40 45 1 2 3 4 5 6 7 8 2008 2010 2012 2014 2016

Country-specific CCCIs for NFCs

DE FR IT ES PT NL

Source: ECB, Bloomberg, BofA ML, DG ECFIN calculations

% Coefficient of Variation* (STDEV/AVG, 3M mov avg.) Note: * Based on available data for 9 EA countries

50 100 150 200 250 300 350 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 EA Spain Italy Germany

Interest rate spread on small (SMEs) and large loans to NFCs

bps

Background graphs

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Frequency of multiple investments by funds in the same company (2010-15)

42% 33% 25% 57% 31% 12%

0% 20% 40% 60% 1 round 2 rounds >2 rounds US EU START-UP SCALE-UP

Source: Preqin Venture Capital database as quoted in Duruflé, Hellman, Wilson (2016)

• The figure shows the frequency of multiple investments in EU

compared to the US.

• In the EU start-ups do receive financing, but less of them received

investments in following rounds, which is essential for their scale-up.

• Scale-ups need PATIENT venture capitalists.

The European Union supports SMEs across different areas

• Improving SMEs access to finance: CMU, Investment

Plan, Fund-of-funds, COSME.

• Supporting SMEs innovation activities: H2020, clusters,

KETs, public procurement for innovation, DSM, IPR.

• Facilitating access to markets: SMS, DSM, public

procurement, Enterprise Europe Network.

• Reducing regulatory burden: SMS, DSM, REFIT.
• Creating a business friendly environment: SBA,

entrepreneurship action plan, insolvency and second chance, European Semester.

• Easing access to skilled workers/ talent: skills agenda.

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