Business investment: Software outpaces bricks and mortar

BNP Paribas Team BNP Paribas

In France, in Q3 2024, for the first time (statistical series dating back to 1949), non-financial companies invested more (in billions of euros, at constant prices) in "information and communication" than in construction (panel A of our chart). This shift was bound to happen sooner or later, given the trend towards intangible investment (in which "information and communication" is the main item). In particular, this growing weighting goes hand in hand with the increasingly widespread use of electronics and software in today's goods, including in traditional sectors such as the automotive industry.

This phenomenon can also be observed elsewhere in Europe, even though the data there are grouped differently and do not provide the same level of detail. Panel B compares investment in new construction excluding housing with investment in intellectual property products (IPP). In Q2 2024, investment in IPP is just below investment in construction in many countries, and even exceeds it in Germany. In Germany, however, while IPP are already dominant, it is mainly because investment in new construction excluding housing is low, and has been lower than in France since 2019, despite a much higher GDP.

In fact, investment in IPP in France is only 6% lower than its German counterpart, compared with a gap of almost 29% in terms of GDP (in real terms). France is also significantly ahead of Italy and Spain in this type of investment (French investment in IPP is almost 2.2 and 3 times higher, respectively, compared with French GDP, in constant euros, which is almost a third higher than Italian GDP and almost twice Spanish GDP).

So much so that the old adage "when the construction sector does well, so does this economy" could now be joined by another: "when (French) tech does well, so does the economy". One thing is certain: investment in software should continue to grow, alongside the increasing number of uses that it is expected to fulfil. It should therefore be less cyclical than investment in construction. In addition, as software depreciates faster than buildings, it will need to be renewed more frequently, which will reinforce the trend towards supporting business investment: a structural determining factor of French growth that is set to remain so in the years ahead.

Download The Full Eco Flash

Author

BNP Paribas Team

BNP Paribas

BNP Paribas Economic Research Department is a worldwide function, part of Corporate and Investment Banking, at the service of both the Bank and its customers.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.