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Overview of Competitiveness in 27 Member States

European Commission - MEMO/10/533   28/10/2010

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MEMO/10/533

Brussels, 28 October 2010

Overview of Competitiveness in 27 Member States

The Europe 2020 Strategy puts forward as a key priority for the Union the promotion of a more resource efficient, greener and more competitive economy. This Memo presents an abridged look at industrial competitiveness in all 27 EU Member States drawn from the report Member States competitiveness performance and policies. The main objective is to analyse industrial competitiveness across the Union and to present the policy measures Member States carry out to improve their competitiveness and, by implication, the competitiveness of Europe as a whole.

Belgium

Belgium’s labour productivity is significantly above the EU average. The country's real effective exchange rate appreciated moderately since 1999, albeit less than for most other EU countries, indicating a slightly decreased competitiveness. Production in manufacturing sectors decreased by more than 20% as a result of the economic crisis; in June 2010, it reached 87% of the pre-crisis level.

Manufacturing accounted for 13% of employment and 16% of GDP in 2008 with chemicals, basic metal and metal products and food/drinks/tobacco being the most important sectors. The trade balance showed a clear surplus for manufacturing, mainly due to chemicals, basic metal and metal products and food/drinks/tobacco.

Towards an innovative industry: Research and innovation performance is characterised by important investments by the business sector, off-setting a relative under-investment by the public sector.

Towards a sustainable industry: The main policy orientations concern increased energy efficiency in buildings (with financial public incentives) and research activities (new clusters on materials, buildings, eco innovation, renewable energies).
Conclusions: Apart from short-term concerns related to the crisis the main challenge facing industry is Belgium's high level of administrative burden and heavy legal and regulatory framework. The innovation system, which has a low share of new science and technology graduates and a low share of high-tech exports, needs structural improvements.

Bulgaria

Bulgaria’s real effective exchange rate depreciated slightly from its 1999 level to 2005 but appreciated strongly from 2005 to 2009, indicating significantly decreased competitiveness. Bulgaria was confronted with one of the biggest drops of manufacturing output in the European Union during the crisis. It fell by almost 35%, but regained 17% in July 2010.

Towards an innovative industry: According to the European Innovation Scoreboard (EIS) 2008, Bulgaria has an innovation performance below the EU average.

Towards a sustainable industry: The Bulgarian industry still remains several times more energy-intensive than the EU average. It also lags behind the EU average in terms of carbon intensity, waste generation by enterprises and exports of environmental goods.

Conclusions: Bulgaria has to undertake important structural reforms to improve its competitiveness such as cutting red tape, fostering innovation with a view toward increasing productivity, improving energy efficiency across all sectors of the economy and developing the transport infrastructure.

Czech Republic

The Czech Republic’s labour productivity was, measured per hour, around 60% of the EU average in 2005 and 2008. The Czech Republic showed one of the strongest appreciations in the real effective exchange rate from its 1999 level to 2005 and 2009. Czech manufacturing output fell by 23% during the crisis but as of July 2010 it stood at 85% of pre-crisis level. The crisis hit the Czech Republic relatively late and economic recovery is expected within the next two years.

Manufacturing accounted for 27% of employment and 25% of GDP in 2008 with basic metal and metal products, transport equipment, electrical and optical equipment and other machinery being the most important sectors. The trade balance showed a clear surplus for manufacturing, mainly due to transport equipment, other machinery and electrical and optical equipment while, in particular, chemicals showed a clear deficit.

Towards an innovative industry: The innovation performance of the Czech Republic has been improving and is slowly nearing the EU-27 average. The strong inflows of FDI led to an important technology and knowledge transfer in the manufacturing and automotive sector in particular. Regarding research and innovation policy in general, in 2009, the Czech Technological Agency was established with the task of allocating most of the public funds for the support of applied research and innovation.

Towards a sustainable industry: The Czech industry is one of the most energy intensive in the EU. On the other hand, the level of environmental goods exported by Czech enterprises is high and they generate a relatively low volume of waste. Sustainable industrial development is defined as a horizontal priority in the Operational Programme Enterprise and Innovation.

Conclusions: The lack of qualified research staff has already become an essential limiting factor in further development of industrial R&D. There is a potential for the increase of energy efficiency and the use of renewable energy. E-government services and e-procurement are yet to be widely disseminated and access to funding remains difficult for SME's.

Denmark

Denmark's labour productivity was above the EU average in 2005 and 2008 however growth has lagged behind most OECD countries for a decade and a half and labour costs have increased more than in the main trading partner countries, leading to a deterioration of the competitive position. Denmark’s real effective exchange rate appreciated since 1999, indicating decreased competitiveness. Relative to the peak before the crisis, Danish manufacturing output dropped by 26%. In July 2010, 16% were regained and output remains at 80% of the pre-crisis level.

Manufacturing accounted for 14% of employment and GDP in 2008 with other machinery, food/drinks/tobacco and electrical and optical equipment being the most important sectors. The trade balance showed a deficit for manufacturing, mainly due to transport equipment and basic metals and metal products while, in particular, food/drinks/tobacco showed a clear surplus.

Towards an innovative industry: The EIS indicators place Denmark amongst the top EU countries. Denmark is in the sub group of ‘slow growers’ on innovation performance. The Danish Government's Globalisation Strategy and corresponding national policies, including innovation, education, energy and the environment, indicate how Denmark aims to be a country with highly competitive industries.

Towards a sustainable industry: The Government has set a target of additional 1.5% in annual savings in the end use of energy, with energy companies expected to deliver considerable proportion of these savings. A climate commission has been set up to devise comprehensive policy proposals for significantly reducing greenhouse gas emissions.

Conclusions: Apart from short-term concerns related to the financial crisis the main challenges facing the Danish industry are the low shares of innovating enterprises, high-tech exports and high-growth enterprises.

Germany

Germany’s labour productivity is above the EU average. Germany is one of the few EU members where the cost competitiveness position (as measured by the real effective exchange rate) increased between 1999 and 2009. In the peak of the crisis output in manufacturing dropped by almost 25%. In July 2010, output was still 10% below pre-crisis levels.

Manufacturing accounted for 19% of employment in 2007 and 23% of GDP in 2008 with transport equipment, machinery, and electrical and optical equipment being the most important sectors. The trade balance showed a clear surplus for manufacturing, mainly due to transport equipment, machinery and chemicals.

Towards an innovative industry: Germany belongs to the group of nations with the biggest R&D capital stock. The output of R&D activities in terms of patents, new products and high productivity is remarkable. From a global perspective, however it is at the lower end of leading countries in innovation performance.

Towards a sustainable industry: The environmental performance of Germany’s industry is good. The support to environmentally friendly technologies has been a focus of Germany’s structural reform and its recovery packages.

Conclusions: Germany’s economy and industry is highly competitive and benefits from framework conditions which are conducive to R&D and innovation. There remain weaknesses such as the framework for competition in services and the need to overhaul public procurement. Given its characteristics, the Clean Car partnership, the Energy-intensive Industries Low Carbon initiative, the Key Enabling Technologies initiative and the trade and investment barriers report are the most relevant to German industry of the actions put forward in the new Communication.

Estonia

Estonia’s labour productivity was very much below the EU average in 2005 and 2008/2009. However, it showed a slight increase over time, both per hour and per person. Estonia is one of the EU members with the highest appreciation of the real effective exchange rate between 2009 and 1999, indicating a significantly decreased competitiveness. In parallel, nominal unit labour costs in Estonian manufacturing increased by 44% between 2000 and 2009, the overall increase was more than twice the EU average of 19%.

Manufacturing accounted for 21% of employment and 17% of GDP in 2008 with food/drinks/tobacco, basic metals and metal products and electrical and optical equipment being the most important sectors. The trade balance showed a deficit for manufacturing, mainly due to refined petroleum and chemicals.

Towards an innovative industry: Since 2007, Estonia has been catching up to the EU27 average in terms of innovation performance. Estonia made extraordinary progress over several years, increasing total expenditure on R&D in relation to GDP, reaching 1.14% at the onset of the crisis.

Towards a sustainable industry: Estonia is doing relatively well in terms of renewable energy. In 2009, the Government has in cooperation with the Parliament strengthened the policy to support energy efficiency and renewable energy use.
Conclusions: Estonia has been considerably affected by the crisis with the biggest reduction of manufacturing output in the European Union. After a period of overinvestment in booming sectors such as construction and real estate, resources need to be reallocated towards the tradable goods sectors.

Ireland

Ireland's labour productivity was, measured both per hour and per person, constantly above the EU average in 2005 and 2008/2009. Ireland’s overall price competitiveness has been deteriorating during the last decade. This was mainly due to strong wage increases, which not only fuelled consumption, but led also to one of the strongest increases in unit labour costs in the euro zone.

Manufacturing accounted for 13% of employment and 22% of GDP in 2008 with chemicals, electrical and optical equipment, food/drinks/tobacco and pulp, paper and publishing being the most important sectors. The trade balance showed a clear surplus for manufacturing, mainly due to chemicals and electrical and optical equipment while most other sectors showed a deficit, in particular, transport equipment and other manufacturing.

Towards an innovative industry: With the labour-cost advantage of traditional Irish exports diminishing, Ireland is committed to use R&D and innovation as drivers of economic growth for manufacturing and services.
Towards a sustainable industry:
The environmental performance of the Irish industry is broadly in line with EU trends. Energy intensity is somewhat lower than on average in the EU. Buoyant economic growth has led to increasing CO2 emissions, in particular from transport, and the existing housing stock often suffers from poor thermal efficiency.

Conclusions: The main challenge for Ireland is to return to a balanced growth path and the undisputed need to consolidate public finances necessitates a careful review of spending and taxation priorities.

Greece

Greece’s labour productivity per person employed is slightly above the EU average, but on a per hour basis stands at around 80% of the EU average. Greece faces a serious problem of competitiveness, which is reflected in a large deficit in goods trade. While services trade is in surplus, mainly due to tourism and shipping, the deficit in goods trade has led to a current account deficit of around 11% of GDP in 2009. R&D investments in relation to GDP, particularly in the private sector, are amongst the lowest in EU and the innovativeness of the Greek economy depends heavily on imported technology and know-how.

Manufacturing accounted for 11% of employment and GDP in 2008 with food/drinks/tobacco, refined petroleum and basic metals and metal products being the most important sectors. The trade balance showed a clear deficit for manufacturing, mainly due to transport equipment, chemicals and electrical and optical equipment, with no sector showing a surplus.

Towards an innovative industry: EU programmes play a major role in both R&D and innovation activity.

Towards a sustainable industry: The environmental performance of the Greek industry can be characterised as rather poor due to weaknesses in the regulatory and administrative environment. The main current funding instrument for environmental policy is the Operational Programme Environment and sustainable development.
Conclusions: Addressing the public finances crisis should alleviate the liquidity problems in the economy in the medium term and restore expectations at a level conducive to growth. Improving the business environment through actions such as those planned in the Memorandum of Understanding (MoU) will contribute to this by reducing the costs of doing business in Greece across the board. However, there remains the structural problem of specialisation in low-skills, low technology and low growth sectors.

Spain

Productivity growth has been slow during the last decade, with high allocation of investment to low productivity sectors. Measures are being taken to change towards a more sustainable model of production that will be able to generate more added value. The economic and financial crisis hit Spain hard. The oversized construction sector and its suppliers, as well as automotive were hit the hardest. Manufacturing output decreased by 27%. In July 2010, the production is still almost 25% below pre-crisis level.

Manufacturing accounted for 15% of employment and GDP in 2008 with basic metal and metal products, food/drinks/tobacco and transport equipment being the most important sectors. The trade balance showed a clear deficit for manufacturing, mainly due to electrical and optical equipment, chemicals, other machinery and textiles and clothing.

Towards an innovative industry: Spain’s total R&D expenditure increased from 0.95% of its GDP in 2001 to 1.27% in 2007, with a private participation of 56.1%. Measures have been adopted to stimulate business creation and facilitate funding and incentives.

Towards a sustainable industry: Energy intensity is still higher than the EU average, but improved by 4.6% in 2008. Promoting renewable energies continue to be a priority of the Government.

Conclusions: Spain would benefit from moving towards a more knowledge-intensive economy. The challenge is to enhance productivity and facilitate wage and price adjustments. Improving innovation and investment by firms, making the regulatory framework more favourable for business creation and growth, training and encouraging competition are also crucial.

France

France’s overall competitiveness position is shown in its labour productivity which was, measured both per hour and per person, clearly above the EU average. The real effective exchange rate has appreciated moderately between 1999 and 2009, indicating a slightly decreased price-competitiveness; however, this decrease was less pronounced than for the EU in total. Moreover, French manufacturing output first declined by 20% during the crisis and then recovered by 9% up to July 2010.

Manufacturing accounted for 13% of employment and 12% of GDP in 2008 with basic metal and metal products and food/drink/tobacco being the most important sectors. The trade balance showed a deficit for manufacturing, mainly due to electrical and optical equipment and textiles/clothing while transport equipment showed a considerable surplus.

Towards an innovative industry: In terms of innovation performance, France remains among 'innovation followers', as measured by the European Innovation Scoreboard. While public sector investment is significant, France’s main weakness lies in a relatively low private investment in R&D and a low innovative behaviour of companies.

Towards a sustainable industry: France shows low emissions from electricity generation compared to most developed countries, significant efforts are still necessary to reach the national and European environmental targets by 2020, notably as regards buildings, transports and renewable energy.
Conclusion: Challenges for France are to improve its external competitiveness and to facilitate structural change. To this end, efforts should continue to improve the overall research and innovation environment, including through stronger links between the business community, higher education and public organisations, to further improve the legal and regulatory framework for businesses, and to develop ‘green’ specialisation areas. Given its characteristics, the Clean Car partnership, the Health and Pharmaceutical process, the Space Industry and the trade and investment barriers report are the most relevant to French industry of the actions put forward in the new Communication.

Italy

Italy’s labour productivity was slightly above the EU average in 2005 and 2008. Nominal unit labour costs in Italian manufacturing increased by 45% between 2000 and 2009, thus more than in any other EU-15 Member State except Luxembourg. As a result, the overall increase was more than twice the EU average of 19%. Italy's real effective exchange rate has appreciated markedly in the past ten years, indicating decreased competitiveness against third countries. Production in the manufacturing sector in July 2010 stands at around 80% of the pre-crisis level.

Manufacturing accounted for 21% of employment and 18% of GDP in 2008 with basic metal and metal products and machinery being the most important sectors. The trade balance showed a surplus for manufacturing, mainly due to machinery and textiles/clothing while chemicals and electrical and optical equipment showed a considerable deficit.

Towards an innovative industry: In innovation performance, Italy is below the EU average and positions itself in the group of 'moderate innovators'.

Towards a sustainable industry: Italy's environmental performances as regard the energy intensity of the economy and the carbon intensity of energy consumption in industry can be characterised as good. This reflects Italy's significant efforts to support the modernisation of the industrial base and to implement energy efficient technologies in order to reduce the need for energy imports. Italy scores below the EU average concerning waste generated by enterprises and exports of environmental goods.

Conclusions: Whilst Italy's short-term priority is to consolidate public finances, a gradual shift of the productive structure towards more high-technology and innovative activities would enhance the country's competitiveness in the medium to long-term. Given its characteristics, the Clean Car partnership, the strategy to enforce intellectual property rights, the Eco-technologies action plan and the trade and investment barriers report are the most relevant to Italian industry of the actions put forward in the new Communication.

Cyprus

Nominal unit labour costs in Cypriote manufacturing increased almost twice as fast as the EU average of 19%, resulting in an overall increase of 36% between 2000 and 2009. Cyprus was affected be the crisis later than most EU members. Manufacturing output in June 2010 was 15% below its pre-crisis level and only 3% higher than at the bottom of the crisis.

Manufacturing accounted for 8% of GDP in 2008 with food/drinks/tobacco being the most important sector.

Towards an innovative industry: The EIS 2008 classifies Cyprus among 'Moderate innovators'. R&D spending and businesses R&D, remain at low levels in comparison to GDP in spite of rapid growth in absolute terms.
Towards a sustainable industry: Cyprus is dependant on imported oil and a centre that would allow the importation of natural gas is expected by 2013.

Conclusions: Cyprus faces a competitiveness problem linked to its structural problem of specialisation in low-skills, low technology and low growth sectors. The policy priority remains to adjust the structure of the economy towards high skill, high growth activities, primarily in services and tourism.

Latvia

Measured both per hour and per person, Latvia's labour productivity is below the EU average albeit showing a slight improvement. Labour shortages, aggravated by significant emigration, contributed to the emergence of a wage-price spiral, with increasingly rapid wage growth outstripping productivity in 2005-2007. Manufacturing production fell by 27% between February 2008 and February 2009 as a result of the economic and financial crisis. By July 2010, output had recovered by 20% from the trough.

Manufacturing accounted for 15% of employment and 11% of GDP in 2008 with food/drinks/tobacco, wood and wood products, and basic metals and metal products being the most important sectors.

Towards an innovative industry: The EIS 2009 identified Latvia as one of the three countries in the last - catching-up group, with an innovation performance considerably below average but an above average rate of improvement.
Towards a sustainable industry: During the period 2008–2009, Latvia implemented the Environmental Policy Integration Programme, using the EEA financial instrument via two open tenders for subproject applications. Ten projects were approved, including two pilot projects where energy is produced from renewable energy resources that are not widely used in Latvia (biodegradable municipal waste and applications involving solar energy and pellets).

Conclusions: Given that labour-intensive products are still very important in Latvia's goods exports and reflecting the strong service orientation of the economy, it is of paramount importance to respond to this deterioration in cost competitiveness by cost reductions in the short-term and by productivity increases in the longer-term. New capital and investment are badly needed exactly at the time when access to finance is particularly difficult.

Lithuania

Lithuania’s labour productivity was, measured both per hour and per person, at around 55% of the EU average in 2005 and 2008/2009. The real effective exchange appreciated significantly between 1999 and 2009, indicating a markedly decreased competitiveness, also compared to the EU average. Nominal unit labour costs in Lithuanian manufacturing remained constant between 2000 and 2005 and increased by 23% between 2005 and 2009, resulting in an overall increase which was somewhat above the EU average of 19%.

Manufacturing accounted for 17% of employment and 18% of GDP in 2008 with food/drinks/tobacco and chemicals being the most important sectors.

Towards an innovative industry: Several measures directly addressing innovation are aiming to strengthen innovation support infrastructure and develop its institutional capacities, to improve R&D and business co-operation in innovation development, to improve quality of human resources for R&D and innovation and to strengthen the public and private R&D base.

Towards a sustainable industry: With the aim to promote Cleaner Production (CP) technologies the PE Lithuanian Environmental Investment Fund (LAAIF) provides subsidies to environmental projects within the de minimis threshold. Conclusions: The most imminent challenge to maintain the competitiveness of Lithuania's economy is to ensure sufficient access to finance for SMEs in order to avoid healthy firms going out of business. Mid to long term challenges are to promote structural change towards more high value added and knowledge intensive sectors.

Luxembourg

Luxembourg’s overall excellent competitiveness position is best shown in its labour productivity which is the highest in the EU. However, nominal unit labour costs in Luxembourgish manufacturing increased by 45% between 2000 and 2009, thus faster than in any other EU-15 Member State except Italy. As a result, the overall increase was more than twice the EU average of 19%. Luxembourg showed a small deficit in the trade of goods in 2009 but its services account generates very high surpluses.

Manufacturing accounted for 10% of employment and 9% of GDP in 2008 with basic metals and metal products being the most important sector. The trade balance showed a deficit for manufacturing, mainly due to transport equipment, refined petroleum and chemicals while, in particular, basic metals and metal products showed a clear surplus.

Towards an innovative industry: The EIS ranks Luxembourg in the category of Innovation follower with a performance above EU average. Three challenges have been identified: reinforce collaboration between the public and private sector; incite more companies to innovate; and attract and retain the high skilled workforce.

Towards a sustainable industry: The 2006 Action Plan on CO2 reduction will be revised by the end of 2010 and a programme to develop sustainable consumption will be set up.

Conclusions: Luxembourg shows relatively high energy intensity in the industry. Improving this parameter could contribute to reduced costs of production. Reducing energy prices would also contribute to lower costs.

Hungary

Hungary’s labour productivity, per person employed, reaches some 70% of the EU average. Nominal unit labour costs in Hungarian manufacturing increased by 25% between 2000 and 2009, somewhat faster than the EU average of 19%. The last two years were especially hard for the Hungarian economy as it faced several challenges as a result of structural problems made more acute by the crisis.

Manufacturing accounted for 22% of employment in 2007 and 21% of GDP in 2008 with electrical and optical equipment, transport equipment and food/drinks/tobacco being the most important sectors. The trade balance showed a surplus for manufacturing in 2007, almost entirely due to transport equipment and electrical and optical equipment while most other sectors showed a deficit, in particular basic metal and metal products and chemicals.

Towards an innovative industry: Hungary belongs to the "catching up" economies as regards innovation. Innovation performance, as measured by the Summary Innovation Index, has improved since 2004, but innovation activity remained at a low level: only one fifth of companies are innovative.

Towards a sustainable industry: The Renewable Energy Action Plan is currently under finalisation. Measures, such as abolishment of bureaucratic obstacles, elaboration of simpler and faster processes and green procurement, should contribute to the development of the green economy in Hungary.

Conclusions: The improvement of the business environment, especially the reduction of administrative burden, remains a key issue. In order to achieve the goal of 25% reduction by 2012, Hungary would have to take important steps in the short term. Reallocation of EU funds to SMEs has been an additional response to ease the lack of financing for small enterprises in the recent period. The new government intends to reinforce SME support.

Malta

Malta’s real effective exchange rate appreciated markedly from its 1999 level until 2005 and 2009, indicating a decreased competitiveness; however, this decrease was less pronounced than for the EU in total. In Malta the manufacturing output fell by 27% during the crisis. Production regained 11% in July 2010.

Manufacturing accounted for 17% of GDP in 2008 with electrical and optical equipment and chemicals being the most important sectors.

Towards an innovative industry: In innovation performance, Malta remains a 'catching-up' country. The innovation and research measures include a variety of aid schemes for enterprises that offer higher intensity aid for SMEs, a research and development incentive package for industry, and capacity building for research and innovation infrastructures.

Towards a sustainable industry: Malta’s main problem is the almost complete dependency on imported energy and two energy plants. A connection to the European energy grid is a long-planned and progressing project. However, this will still need time; a feasibility study has been finished and the tender period for the actual project closed in July 2010.

Conclusions: Given the small market size, the effectiveness of the competition policy and the targeted use of limited resources are crucial; this refers to investments in the knowledge economy, the development of renewable energy and to energy and resource efficiency.

The Netherlands

The Netherlands enjoys a surplus in its trade of goods and its labour productivity, both per hour and per person, is clearly above the EU average. The Netherlands’ real effective exchange rate appreciated markedly between 1999 and 2009, indicating decreased competitiveness; however, this decrease was less pronounced than for the EU on average. Manufacturing production is still seven percent lower in July 2010 than before the start of the economic and financial crisis. During the peak of the crisis it fell by more than 15%.

Manufacturing accounted for 11% of employment and 14% of GDP in 2008 with food/drinks/tobacco and chemicals being the most important sectors. The trade balance showed a clear surplus for manufacturing, mainly due to refined petroleum, food/drinks/tobacco and chemicals.

Towards an innovative industry: According to the EIS 2008, the Netherlands is an 'innovation follower'. There are improvements in terms of public-private linkages and entrepreneurship. However, firms are clearly less innovative than EU average, indicating that the opportunities that newly developed knowledge offers are not fully utilised.

Towards a sustainable industry: There is a strong commitment to ambitious goals: Energy savings of 2% per year, increasing share of renewable energy to 20% in 2020 and reducing CO2 emissions by 30% by 2020 compared to 1990.

Conclusions: The main challenges in the Netherlands are to increase private R&D investments and to promote renewable energy. Several structural measures have been adopted as anti-crisis measures. The transition towards a more energy efficient and low carbon economy could be stepped up with further incentives.

Austria

Austria’s labour productivity was, measured per hour and per person employed, markedly above the EU average in 2005 and 2008/9. Austria is one of the very few EU members where the real effective exchange depreciated between 1999 and 2005, indicating increased competitiveness. Austrian manufacturing output fell by almost 20% in the course of the economic and financial crisis. In June 2010, 11% of that reduction was regained.

Manufacturing accounted for 16% of employment in 2008 and 20% of GDP in 2007 with basic metals and metal products, other machinery and electrical and optical equipment being the most important sectors. The trade balance showed a clear surplus for manufacturing, mainly due to other machinery, basic metals and metal products, and wood and wood products while refined petroleum and textiles and clothing showed a clear deficit.

Towards an innovative industry: The EIS 2009 assigns Austria to the group of 'innovation followers'. Whereas the relative share of public sources (Federal/States) has decreased over time, the business sector has increased its share. Most interesting is the sharp increase of financial inflow from foreign countries. The basic strength of the Austrian innovation system lies in the strong R&D performance of small and medium-sized enterprises.

Towards a sustainable industry: The share of renewable energy production in energy consumption is 28.5% which represents the fourth rank in the EU in 2008. The emphasis of Austrian climate policy lies on energy efficiency of buildings.

Conclusions: The Austrian economy is very competitive and no major bottlenecks exist that hamper competitiveness in the short- to medium term. Issues to be addressed are a reform of the education system with the aim of increasing the number of graduates and increasing the number of (start-up) entrepreneurs. In addition, R&D&I policy and spending could better support structural change from an economy dominated by low-R&D-intensive industries requiring low and low-intermediate skills towards an economy based on high-value and high growth sectors that require high skilled labour.

Poland

Poland is one of the few EU members where the cost competitiveness position (as measured by the real effective exchange rate) remained almost unchanged since 1999. Nominal unit labour costs in manufacturing declined 25% between 2000 and 2009, mostly during the first half of the decade, resulting in a 44 percentage point gap compared to the EU average increase of 19%. Poland was less severely hit by the economic and financial crisis and managed to avoid GDP recession. Manufacturing output dropped by 17% however this was almost completely regained in July 2010. Bankruptcies increased by 120% in 2010 compared to January 2009.

Manufacturing accounted for 21% of employment and 19% of GDP in 2008. The trade balance showed a deficit for manufacturing, mainly due to chemicals, electrical and optical equipment and machinery while transport equipment showed a considerable surplus.

Towards an innovative industry: Compared with other European countries, Poland is not one of the most innovative economies. Nonetheless, the level of investment in innovation is rising. The analysis of the current policy mix confirms its horizontal approach which can be described as offering generic rather than sector-specific support to innovation.

Towards a sustainable industry: The structure of the industry and use of older technologies contribute to higher energy and carbon intensity. Poland is increasing investment in renewable energy by 0.1-0.2% of GDP in the period 2009-2012.

Conclusions: The Polish economy stood well during the crisis. It could rely on its still flourishing domestic market, good prudential financial market regulations and a floating exchange rate. Yet, the country faces several challenges, notably to upgrade and develop road, rail and energy networks. Simpler and more transparent regulations and an improved efficiency of public administration and judiciary would be positive steps. Given its characteristics, the Energy-intensive Industries Low Carbon initiative, the trade and investment barriers report, the monitoring of Raw Materials and the contribution of Cohesion Policy to industrial policy objectives are the most relevant to Polish industry of the actions put forward in the new Communication.

Portugal

The Portuguese economy continues to suffer from an overall low productivity and weak competitiveness position and has recorded persistent sizeable current account deficits in the current decade. In Portugal, manufacturing output fell by more than 20% in the course of the financial crisis. In July 2010, manufacturing output stands at 85% of pre-crisis level.

Manufacturing accounted for 18% of employment and 14% of GDP in 2006 with food/drinks/tobacco and textiles and clothing being the most important sectors. The trade balance showed a clear deficit for manufacturing, mainly due to chemicals, electrical and optical equipment, and basic metals and metal products.

Towards an innovative industry: The EIS 2009 data shows that Portugal has continued to improve its innovation performance and is amongst the fast growing 'Moderate innovators' countries. Portugal made considerable progress in many areas (such as human resources or business R&D) but still reveals weaknesses in a number of areas (e.g. business R&D).

Towards a sustainable industry: The national strategy for energy 2020 updates the strategy defined in 2005 and provides an integrated and detailed framework of measures for promoting renewable energy, energy efficiency and associated eco-industries, competition and diversification of primary sources of energy, security of supply, reduction of energy dependence and its overall environmental impact and to achieve climate change goals.

Conclusions: Portugal could improve its overall business environment by creating more favourable conditions for investment and entrepreneurship. Efforts should continue to implement an impact assessment and evaluation systems, to achieve further administrative simplification, administrative burden reduction and greater efficiency of public services in general and in particular in the judicial system.

Romania

Labour productivity in Romania was growing from 2005 but only reached 45% of the EU average in 2008/9. However, even though annual productivity growth rates in this period exceeded 5%, significant losses in competitiveness were unavoidable as nominal unit labour costs in Romanian manufacturing increased by 261% between 2000 and 2009. This increase was higher than in any other EU Member State and more than 10 times higher than the EU average of 19%. In July 2010, manufacturing output was 6% lower than before the economic and financial crisis. In the course of the crisis it fell by almost 20%.

Manufacturing accounted for 21% of employment and 24% of GDP in 2007 with food/drinks/tobacco being the most important sector, while transport equipment and basic metals and metal products bring a significant contribution as well.

Towards an innovative industry: The innovation performance is weak compared to the EU average (third to last in the EU-27) but it is one of the growth leaders in the ‘catching–up’ group of countries. The current set of innovation policy instruments in Romania includes direct instruments, which continue to be the dominant funding mechanism, and a few indirect instruments, such as tax incentives, which are largely insufficient.

Towards a sustainable industry: The environmental performances of the Romanian industry are poor. The levels of the energy-intensity in industry as well as of waste generated by enterprises are the third-highest in the EU. The Operational Programme Increase of Economic Competitiveness provides funding for the development of an eco-efficient productive system, increasing the energy efficiency and promoting renewable energy sources.

Conclusions: Whilst the short-term priority is to bring the public finances under control and stabilise the macro-economic framework, the implementation of a number of urgent structural reforms should help to significantly improve the business environment. Effective reform of public administration at central and local level would be a key undertaking for Romania.

Slovenia

Slovenia’s labour productivity reached around 80% of the EU average in 2005 and in 2008/2009. The real effective exchange rate has appreciated since 1999. The implied decrease in competitiveness is moderate as the drop is lower than for the EU on average. The highest level of manufacturing output in the last three years took place in June 2008. When compared with the lowest level of manufacturing output in April 2009, the difference is as high as 28%. In July 2010, output had only recovered by 13%.

Manufacturing accounted for 24% of employment and 22% of GDP in 2008 with basic metals and metal products, chemicals, other machinery and electrical and optical equipment being the most important sectors. The trade balance showed a deficit for manufacturing, mainly due to refined petroleum while other machinery showed a surplus.

Towards an innovative industry: Slovenia has the highest R&D intensity among new Member States. It amounted to 1.7% of GDP in 2008. Slovenia has increased its R&D intensity during 2000-2008 by an annual growth rate of 2.3%, as it reached 1.4% in 2000. This growth is due to the increase in R&D investment in the private sector. Slovenia has made considerable progress; it now belongs to the ‘Innovation followers’ along with countries like Belgium, Austria and France.

Towards a sustainable industry: Due to its location that makes it a transit country and its specialisation in manufacturing activities, Slovenia is prone to high industrial emissions. Public investment and procurement are to favour energy efficiency and environmentally-friendly solutions.

Conclusions: Despite the fact that Slovenia was the fastest growing new EU Member State before the crisis, it was hit hard. In order to mitigate the dependence on external demand in the future, it is crucial to also reinforce the domestic basis. More can be done to strengthen Slovenia’s domestic competitiveness and to facilitate the transition of sectors facing restructuration.

Slovakia

Slovakia’s labour productivity per hour and per person reached some 80% of the EU average in 2008/2009. Compared to its level in 2005, it showed a slight increase on both counts. Nominal unit labour costs in Slovakian manufacturing declined by 28% between 2000 and 2009 with most of the decline occurring during the first half of the decade, resulting in a 47 percentage point gap compared to the EU average increase of 19%. Manufacturing output in Slovakia fell by 32% in the wake of the crisis. By July 2010, Slovakia stands at 87% of pre-crisis level.

Manufacturing accounted for 24% of employment and GDP in 2008 with basic metals and metal products, transport equipment and electrical and optical equipment being the most important sectors. The trade balance showed a surplus for manufacturing, mainly due to transport equipment, refined petroleum and basic metals and metal products, while, in particular, chemicals showed a clear deficit.

Towards an innovative industry: Slovakia ranks among the countries with the lowest rate of innovation activity in the EU. Most financial assistance is provided to the technology transfers, business and technology incubators, R&D cooperation and risk capital schemes supporting SMEs. The major novelty is the substantial increase of funds allocated.

Towards a sustainable industry: Slovakia ranks among countries with higher energy intensity of its industry and the carbon intensity of its energy consumption than EU average. In August 2008 an 80 million EURO call for proposals was launched to raise energy efficiency in power production, co-financed from the EU structural funds.

Conclusions: Taking into account the fact that Slovakia is now part of the euro zone, whilst the neighbouring countries are not and have floating exchange rates, it is crucial that Slovakia gives a further impulse to its reform programme in support of productivity gains and improvements in the non-price competitiveness of its products.

Finland

Finland’s labour productivity is 10% above the EU average on a per hour basis (+7% per person employed). Labour productivity in manufacturing ranks 5th in the EU. During the peak of the economic and financial crisis the manufacturing sector faced an output reduction of 28%. In July 2010, output recovered from this trough by only 10%.

Manufacturing accounted for 17% of employment and 22% of GDP in 2008 with electrical and optical equipment, pulp, paper and publishing, basic metal and metal products and other machinery being the most important sectors. The trade balance showed a clear surplus for manufacturing, mainly due to pulp, paper and publishing and electrical and optical equipment.

Towards an innovative industry: Finland is in the group of innovation leaders. Both public and private R&D expenditure are well above EU average. The Government agreed in January 2009 on a stimulus package which included a number of relevant measures for innovation policy. Appropriations allocated to research and development has been raised on a permanent basis beyond the already high R&D support.

Towards a sustainable industry: The Finnish industrial sector is energy-intensive compared to the EU average and in particular in comparison to other Nordic countries. The new Climate and Energy Strategy envisages that growth of energy consumption will be halted and reduced by 2020. In June 2009, a broad-based Energy Efficiency Committee proposed 125 measures to achieve the 37 TWh of energy-savings (of which 5 TWh for electricity) by 2020.

Conclusions: Finland's economy is competitive in relation to the EU average and competitiveness policies aim in the right direction. Nevertheless, Finland faces a number of challenges; its innovation policy could be broadened to include all sectors of the economy and centred on major societal challenges. Measures to increase the number of high-growth enterprises may improve business dynamism. Improving energy efficiency is important to reach the climate change targets and ensure long-term competitiveness of industry.

Sweden

Sweden ranks among the most competitive economies in the world and this is reflected in its labour productivity, which is above the EU average. Sweden's real effective exchange rate has depreciated since 1999, indicating increased competitiveness. Swedish manufacturing production fell by one quarter during the crisis. In July 2010, the level of manufacturing output stood at 86% of its pre-crisis level.
Manufacturing accounted for 12% of employment and 18% of GDP in 2008 with basic metal and metal products, other machinery, electrical and optical equipment and transport equipment being the most important sectors. The trade balance showed a clear surplus for manufacturing, mainly due to pulp, paper and publishing and other machinery.

Towards an innovative industry: Sweden is among the Innovation Leaders. In 2008, estimated R&D investment by companies with 50 employees or more was equivalent to 2.86% of GDP. Sweden's public investment in R&D is estimated to have reached 1% GDP in 2009, which meets the agreed EU objective.

Towards a sustainable industry: Sweden has low national emissions per capita and per unit of GDP compared with most other industrial countries. The relatively low emissions are largely due to a high proportion of hydro and nuclear power in electricity production and substantial use of bio fuels.

Conclusions: Sweden ranks among the most competitive economies in the world and no notable major challenges are identified. In the longer term, Sweden might benefit from loosening its dependence on a limited number of large firms and target new markets.

The United Kingdom

Nominal unit labour costs in UK manufacturing increased by 17% between 2000 and 2009 with a remarkable acceleration during the second half of the decade. However, the overall increase still remained somewhat below the EU average of 19%. The United Kingdom is one of the few EU members where the cost competitiveness position (as measured by the real effective exchange rate) increased from 1999 to 2009. Manufacturing output decreased by 15% in the course of the crisis. In July 2010, output was still almost 10% lower than prior to the crisis. Manufacturing accounted for 10% of employment and 14% of GDP in 2008.

Towards an innovative industry: The UK's strong innovation performance is confirmed by its 5th rank on the summary innovation index out of 27 Member States based on the EIS 2008. The UK’s good standing is due to excellent performance on a few indicators, most notably lifelong learning and venture capital.

Towards a sustainable industry: The government has introduced measures to help UK enterprises and to lay the foundation for a sustainable recovery.
Conclusions: The high level of productivity and the depreciation of the real effective exchange rate are clear signs for the high level of competitiveness of the UK economy. However, the economic performance depends to a certain degree on the primary sector and financial services which may indicate vulnerability to external shocks. Weaknesses in innovation, especially in the service sectors, remain. Given its characteristics, the Healthcare and Pharmaceuticals process, the Key Enabling Technologies initiative and the creation of the Business Services High Level Group are the most relevant to the UK industry of the actions put forward in the new Communication.

More information

http://ec.europa.eu/enterprise/policies/industrial-competitiveness/industrial-policy/index_en.htm


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