The macroeconomic impact of tariff shocks and other geopolitical shifts on the European economy has been the focus on intense speculation. Given the heightened uncertainty, the impact on investment has been a particular concern.

So far, however, the EU economy has proven remarkably resilient and adaptable, with modest growth continuing in 2025 (European Commission 2025). Aggregate investment has proved to be similarly resilient, but the headline figure masks the fact that corporate investment has effectively stalled in recent years (BIS 2025), with uncertainty a major contributor. The latest edition of the EIB Group Investment Report (EIB 2026) examines investment trends in the EU, the drivers behind them, and what can be done to accelerate the investment needed to reinforce the competitiveness, autonomy and sustainability of the EU economy.

Investment has been resilient but needs to accelerate, with a decisive push for private investment

Rapid global shifts are testing Europe’s traditional sources of security, stability, and competitiveness. The digital revolution is enhancing productivity and efficiency but also creating new dependencies. At the same time, industries linked to the energy transition are becoming ever more strategic. Geopolitical shifts are bringing the EU and like-minded countries closer together. This fast-moving context demands a step change in investment, particularly in private investment, for security, defence, technology, energy, natural resources, access to markets, and trade.

The resilience of investment in the EU has primarily relied on strong public investment, which has grown faster than GDP, and government incentives for private investment that remain above pre-pandemic levels (Figure 1). Corporate investment overall has stalled (Figure 2), while investment in innovation-related intangible assets has continued to grow. At the same time, intangibles have proved particularly vulnerable to increased uncertainty (Figure 3).

Figure 1 Change in real gross fixed capital formation in the EU

Cumulative investment since the fourth quarter of 2019, by sector (%)

Source: EIB staff calculations based on Eurostat.
Note: Data excludes Ireland, is deflated using total investment, and is normalised so that the fourth quarter of 2019 equals 0.

Figure 2 Real corporate investment in the EU and US

Cumulative since Q4 2019 (%)

Source: EIB staff calculation based on Eurostat and FRED.
Notes: (*) EU data exclude Ireland. All figures were adjusted using the implicit price index for gross fixed capital formation for both the EU and the United States. Private investment in information processing equipment (IPE) was deflated using the specific price index for IPE investment. Four-quarter moving averages.

Figure 3 Change in investment relative to total fixed assets when firms perceive uncertainty as a major barrier to investment (percentage points)

Source: EIB staff based on EIBIS.
Notes: Regression of investment intensity on uncertainty controlling for (lagged) investment intensity, a cyclical component, a structural financial component, and firms’ future demand expectations.

Capitalising on Europe’s strengths to address strategic gaps

Innovation

Europe retains a strong global standing in several strategic industries, including healthtech, advanced manufacturing and robotics, cleantech, semiconductor equipment, aerospace, quantum and high-performance computing, and automotive (Figure 4). It can build on this foundation through targeted intervention, a focus on scaling-up and predictable demand, leveraging the power and size of the EU market. Strong global alliances – especially for critical raw materials and markets – are also essential.

Figure 4 Exports of cleantech goods ($ billion)

Source: EIB staff calculations based on UN Comtrade data.

Digitalisation and AI

AI is being rapidly adopted by European firms, something confirmed by the EIB’s annual Investment Survey (EIBIS) of 13,000 EU firms. EIBIS also confirms that Europe is keeping pace with the US in this regard. Moreover, EIB analysis shows that AI adoption has already had a material impact on EU firms’ productivity, accounting for about 12% of the total productivity increase recorded since 2019 (Figure 5). Europe will benefit from its strong industrial base and supportive digital infrastructure, but the expansion of generative AI will intensify strategic dependencies and investment needs for innovation, data centres, and energy. Europe’s strategic position will be strengthened by a coordinated pan-European approach that aligns initiatives and investment in cutting-edge computational infrastructure, EU data spaces, and cybersecurity.

Figure 5 Impact of big data and AI adoption on total factor productivity (index)

Source: EIB staff calculations based on EIBIS 2019-2025.
Note: Aggregate total factor productivity derived from a firm level regression for the 2019-2025 period.

Energy

Europe weathered the energy shock and used it as an opportunity to enhance the security of its energy market. Energy costs are being pushed down as structural transformation and market integration advance, although they remain an issue, not least for energy-intensive industries. To prevent new bottlenecks from emerging, investment needs to accelerate in the grid, cross-border interconnectors, storage and electrification to achieve greater flexibility and security, and bring down energy costs for EU businesses. This will also spur investment by firms (Figure 6).

Figure 6 Estimated response of manufacturing firm profits and investment  to a 1 percentage point decline in energy costs (in percentage points)

Source: EIB staff calculations based on the EIBIS, OECD (Input-Output Tables, 2025) and Moody’s Orbis database

Security and defence

Large investment needs in defence call for coordination, the mobilisation of private resources and a strengthening of European defence industries. Increased defence spending will also deliver some growth and productivity dividends. These will be highest for defence investment and in particular for military and dual-use R&D (Figure 7), while European coordination can enhance spillover effects across EU countries and the private sector. The composition of the supply chain also matters for security. The EU market for mergers and acquisitions shows the increasing maturity and interconnectedness of EU domestic production, even though the presence of foreign players remains significant.

Figure 7 Impact on EU GDP of a 1% increase in public defence spending, by expenditure type (cumulative, in %)

Source: García-Serrador et al. (2025).

Social investment

Europe is healthier, safer and more inclusive than any other region globally. While a sustained level of social investment levels is important to maintain these standards, action to address housing needs is increasingly urgent: 51% of people living in EU cities say a lack of affordable housing is their most urgent problem. We estimate that addressing housing shortages would free people to move to areas with better job opportunities and could increase EU GDP by 1.7% and decrease EU-wide wage inequality by around 1.5%.

A resurgence in corporate investment will require not only supportive public policies but also clear business opportunities

Deepening the EU Single Market offers a critical way to achieve this and also raise firm productivity, as others have recently argued (Cerdeiro et. al 2026, Bernasconi et al. 2025).

In fact, we estimate that the Single Market has underpinned 25% of new investment in the EU since the 1980s. Yet integration is stalling: 62% of EU firms exporting within the EU say they face barriers to such trade. Removing these could improve firms’ investment intensity by 10%, with even stronger gains for investment in intangibles. We also show that intra-EU trade has at least partially offset trade with countries beyond the EU when trade shocks hit, although this adjustment requires that a minimum of production and trade already takes place within the Single Market.

Europe’s capital markets form another area of untapped potential. Proven public sector instruments such as risk sharing, securitisation, venture capital, and venture debt are an effective way mobilise private savings, help build pan-European market activity, and make the savings and investments union a reality. These mechanisms help level the playing field, expanding firms’ access to growth capital and fostering stronger innovation ecosystems. For investors like pension funds and insurance companies, they open new opportunities and enhance risk diversification. The EIB Group is a pioneer in this field, accounting for 30% of the venture debt market and 24% of the venture capital market. Through the European Tech Champions Initiative 2.0 (ETCI 2.0), it seeks to close Europe’s later stage financing gap by scaling investment in large and mid-size tech growth funds and attracting long term institutional capital.

Learning from what works – European financial instruments

Given limited available resources, future public support will need to focus even more on impact and mobilising private capital. It is most effective when Europe-wide and target at specific policy objectives, while European financial instruments are a proven tool for mobilising private capital resources. For example, an InvestEU guarantee of €1 delivers €15 of investment in the real economy, with 70% of resources mobilised coming from the private sector.

Financial instruments can also deliver tangible impacts, strengthening firm performance and promoting innovation. For example, firms receiving EIB-funded loans invested 15% more and had 5% higher productivity compared to peers, while companies that receive EIB venture debt raise 1.5 times more finance than other similar firms (Figure 8).

Figure 8 Performance of EIB beneficiary firms versus comparable non-beneficiaries (% difference)

Source: EIB staff estimates based on internal EIB loan data, Orbis database and PitchBook data.
Note: For intermediated lending, the graph reports the average impact for recipients of EIB-backed loans relative to a matched sample of their peers in the three years after the loan. For venture debt, the graph reports the differences in financing rounds between EIB venture debt recipients and a comparative sample of non-EIB beneficiaries.

Efficiency and productivity are key to delivering on large investment programmes in infrastructure and housing. Labour productivity in the EU construction sector has declined 15% since 2000, contributing to the problem of unaffordable housing and raising the cost of infrastructure. Digitalisation – particularly among firms in the construction industry supply chain – could improve coordination and efficiency. When it comes to planning and implementing infrastructure investments, a comparison of experiences across the EU shows the importance of standardised technology, streamlined governance and improved procurement for the cost-effective delivery of public infrastructure.

References

Burgert, M, M Chui, D Gorea and F Zampolli (2025), “Investment in an increasingly uncertain global landscape”, Bank for International Settlements Bulletin 108.

Bencivelli, L, L De Masi, E Falck, A Fernández Cerezo, S Formai, I Hidalgo Bricio, E Mattevi and A Nagengast (2026), “Embracing AI in Europe: New evidence from harmonised central bank business surveys”, VoxEU.org, 9 January.

Bernasconi, R, N Cordemans, V Gunnella, G Pongetti and L Quaglietti (2025), “What is the untapped potential of the EU Single Market?”, ECB Economic Bulletin 8.

Cerdeiro, D and L Rotunno (2026), “EU barriers to scaling up: The case of fragmented product markets”, VoxEU.org, 3 February.

European Commission (2025), 2026 European Macroeconomic Report, European Economy Institutional Paper 328.

EIB – European Investment Bank (2026), Investment Report 2025/2026 – Capitalising on Europe’s strengths.