PPMI partners with the EIB for a study on the effect of inflation on business investment
In April 2023, PPMI started a collaboration with the European Investment Bank (EIB) to access data from the bank’s investment survey (EIBIS) and analyse the effect of inflation on business investment. As inflation rises, central banks increase interest rates to lower money supply in the economy. However, higher rates make access to external financing more difficult for businesses, since the cost of borrowing money also increases. This may affect in particular firms that are not liquid-rich and require investment to grow, such as small and medium enterprises (SMEs). As SMEs make up 99% of EU businesses, this may, in turn, have important repercussions on the overall growth prospects of the EU economy.
The analysis will contribute to an ongoing PPMI project on “SMEs and high inflation”, commissioned in December 2022 by the Directorate General for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW). The findings from the collaboration will be published both on the EIB website as part of their Working Papers series and will be integrated into the DG GROW study. The latter will provide the European Commission and national European Union governments with solid empirical evidence on how the current high inflation environment is affecting SMEs and what can be done to tackle it.
