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ALL EYES ON EUROPE’S ‘JUNCKER PLAN’

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The ‘Juncker Planan initiative announced by the European Commission (EC) in January 2015– has the ambitious objective of boosting Europe’s faltering economies by delivering €315 billion of infrastructure investment by 2017.Securing this amount of funding will be a challenge, but should be possible with initiatives such as the European Investment Advisory Hub, says Michael Wilkins, Managing Director of Infrastructure Finance at Standard & Poor’s

European economies remain weak, in part, due to a high infrastructure investment deficit – i.e. a shortfall in spending compared to historical investment levels. To address this, the European Commission (EC) formally adopted the ‘Juncker Plan’ – named after EC president Jean-Claude Juncker – at the start of the year and formally approved in July 2015.

The plan, which has identified a pipeline of 2,000 projects worth an estimated €1.3 trillion, aims to create more jobs and boost economic growth in Europe through increased infrastructure investment over the next three years. But with only €21 billion coming from the public sector, the plan hinges on a significant increase in private investment.  As such, convincing investors that the identified pipeline offers lucrative investment opportunities will be key to its success. To this end, the EC has set up the European Investment Advisory Hub (EIAH) to provide investors and project sponsors with a one-stop-shop for expertise and guidance.

Building a case

The burgeoning infrastructure deficit in Europe is a real concern for many EU member states. For instance, Bruegel – a Brussels-based think tank – has estimated the combined infrastructure deficit of the EU-15 (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the U.K.) to be about €260 billion since 2006. We estimate the 20-year accumulated investment deficit in the U.K. alone to be about £64 billion (approx. €86 billion).

Furthermore, a study commissioned by the EC and EIB in November 2014 identified that EU investment in 2013 was 15% (€430 billion) below its pre-crisis peak in real terms. If investment does not pick up soon, compliance with the EU’s fiscal rules – which set numerical targets for budgetary aggregates – will be very difficult for EU member states to achieve.

Such investment is particularly important for Europe’s beleaguered economies. Indeed, spending on infrastructure has been shown to benefit the economy far beyond the initial sum invested. For instance, simulations show that each additional £1 spent on infrastructure in the U.K. would increase real GDP by £1.9 over the following three-year period. We also predict that additional spending of 1% of GDP in the U.K. would add more than 200,000 jobs in the same timeframe.

Public funding leads the way

While the need for greater infrastructure spending is clear, many question how the EC’s ‘Juncker Plan’ will realise €315 billion of additional infrastructure investment in the relatively short time-frame proposed – only three years. The EC’s answer is to kick-start the plan with an initial investment of €21 billion from the European Fund for Strategic Investment (EFSI), made up of €16 billion from the EU and €5 billion from European Investment Bank (EIB). The hope is that this initial €21 billion will attract up to 15 times more through the “crowding-in” of private investment.

Indeed, converting €21 billion of EC funding into €315 billion of real long-term investments in just three years is no easy feat. It will require a significant amount of large-scale private investment, particularly from institutional investors such as pension funds and insurers.

European Investment Advisory Hub instils confidence

The success of the plan, therefore, relies on convincing investors that the pipeline of projects provides attractive and viable investment opportunities. One way to do this is to ensure careful project selection in the initial stages, so that funding is allocated to areas where it will produce the best returns.

With this in mind, the EC is encouraging project sponsors to make use of the newly-launched European Investment Advisory Hub (EIAH), which will act as a key pillar of the ‘Juncker Plan’. The EIAH will act as single point of entry for questions related to infrastructure investments within the EU – a service which will be especially useful for sponsors without previous experience in project financing.

The idea is for the EIAH to combine the expertise of the EC, the EIB, national development banks, and authorities from the European Structural and Investment Funds to provide the following:

  • Technical assistance for authorities and project sponsors;
  • Understanding of project eligibility criteria under the EFSI regulation;
  • Local knowledge; and
  • A platform for peer-to-peer information exchange and the sharing of project development knowhow.
Mike Wilkins

Mike Wilkins

Certainly, free access to assistance and advice from a professional advisory body such as this will be crucial in helping projects to thrive. Evidence of successful projects will, in turn, help to convince investors that the ‘Junker Plan’ is achievable and realistic, thus, stimulating the scale of investment necessary.

Undoubtedly there is demand from private investors for infrastructure assets. Not only do projects generally offer better yield than investment-grade sovereign bonds or corporate debt, the type of returns match the long-term liabilities of insurers and pension funds. If this demand can be fulfilled by the establishment of attractive investment opportunities, we can be hopeful that infrastructure projects will be realised – providing a significant boost to the global economy. And, in this respect, Europe may provide an example for others to follow.

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Tänak wins easily in the Arctic as Rovanperä grabs early title lead

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Tänak wins easily in the Arctic as Rovanperä grabs early title lead 1

Finn becomes youngest ever WRC leader with Belgian Neuville back in third.

Ott Tänak sealed a dominant start-to-finish victory at Arctic Rally Finland Powered by CapitalBox on Sunday afternoon.

The Estonian was never seriously challenged during the three-day encounter in Lapland’s frozen forests. He built a comfortable lead during the first two legs and eased through the finale to win the FIA World Rally Championship’s second round by 17.5sec.

Home hero Kalle Rovanperä fended off a charging Thierry Neuville to claim the best result of his career in second. At just 20 years old, he became the youngest driver to lead the WRC in the championship’s 49-year history. Neuville finished 2.3sec adrift in third.

Tänak won five of the 10 snow and ice speed tests in his Hyundai i20. Apart from a brush with a snowbank on Saturday, he avoided trouble on superfast roads near Rovaniemi to kick-start his title bid after retiring from the season-opener in Monte-Carlo.

“The pressure was there and we knew it was going to be very complicated to take the fight,” he said. “In the end we did a very good weekend, with only one mistake. It’s an amazing place, definitely one of the best places to have a winter rally.”

Rovanperä, starting just his ninth top-level rally, began the final day with a 1.8sec buffer to Neuville. He extended it by a tenth in the first of two passes through the 22.47km Aittajärvi test, before winning the final Wolf Power Stage to retain his grip on second.

The Toyota Yaris driver moved four points clear of Neuville at the top of the standings, relegating world champion Sébastien Ogier who had a disappointing weekend. The Frenchman finished 20th after burying his Yaris into a snow drift.

Neuville’s third place provided a double podium for Hyundai Motorsport, which reduced Toyota Gazoo Racing’s manufacturers’ championship lead to 11 points.

Craig Breen finished fourth in another i20 after a four-rally absence. Tyre management was crucial and the Irishman fell back on Saturday as he struggled for grip on deteriorating roads after ending the opening day in second. He was 52.6sec adrift of Tänak.

Breen kept Elfyn Evans at bay in the final test after the Welshman closed to within 3.6sec in the penultimate stage. The final gap between them was 8.9sec. Japan’s Takamoto Katsuta rounded off the top six in another Yaris.

Tributes were made on the podium to Finnish rally great Hannu Mikkola. The 1983 world champion and three-time runner-up died on Friday and the Finnish Air Force led the accolades with an F18 Hornet flypast.

The WRC moves to the asphalt Croatia Rally for round three, which is based in Zagreb on April 22-25.

Final positions

1. O Tänak / M Järveoja EST Hyundai i20 2hr 03min 49.6sec

2. K Rovanperä / J Halttunen FIN Toyota Yaris +17.5sec

3. T Neuville / M Wydaeghe BEL Hyundai i20 +19.8sec

4. C Breen / P Nagle IRL Hyundai i20 +52.6sec

5. E Evans / S Martin GBR Toyota Yaris +1min 01.5sec

6. T Katsuta / D Barritt JAP Toyota Yaris +1min 37.8sec

FIA World Rally Championship (after round 2 of 12)

1. K Rovanperä 39pts

2. T Neuville 35

3. S Ogier 31

4. E Evans 31

5. O Tänak 27

 

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Euro zone factories buzzing in February as demand soars

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Euro zone factories buzzing in February as demand soars 2

By Jonathan Cable

LONDON (Reuters) – Euro zone factory activity raced along in February thanks to soaring demand, a survey showed on Monday, although the burst of business led to a shortage of raw materials and a spike in input costs.

Restrictions imposed across the continent to try to quell the spread of the coronavirus have shuttered vast swathes of the bloc’s dominant services industry, meaning it has fallen to manufacturers to support the economy.

IHS Markit’s final Manufacturing Purchasing Managers’ Index (PMI) jumped to a three-year high of 57.9 in February from January’s 54.8, ahead of the initial 57.7 “flash” estimate and one of the highest readings in the survey’s 20-year history.

An index measuring output, which feeds into a composite PMI due on Wednesday that is seen as a good guide to economic health, climbed to 57.6 from 54.6, well above the 50 mark separating growth from contraction.

“Manufacturing is appearing as an increasingly bright spot in the euro zone’s economy so far this year,” said Chris Williamson, chief business economist at IHS Markit.

“The solid manufacturing expansion is clearly helping to offset ongoing virus-related weakness in many consumer-facing sectors, alleviating the impact of recent lockdown measures in many countries and helping to limit the overall pace of economic contraction.”

A Reuters poll last month showed the bloc was in a double dip recession and that the economy would contract 0.8% this quarter after shrinking 6.9% in 2020 on an annual basis. [ECILT/EU]

Rocketing demand for manufactured goods pushed factories to increase staffing levels for the first time in nearly two years.

But lockdown measures disrupted supply chains and factories struggled to obtain raw materials, leading to a big increase in delivery times.

“The growth spurt has brought its own problems, however, with demand for inputs not yet being met by supply. Shipping delays and shortages of materials are being widely reported, and led to near-record supply chain delays,” Williamson said.

Those shortages allowed suppliers to hike their prices at the fastest rate in almost a decade. The input prices PMI bounced to 73.9 from 68.3.

(Reporting by Jonathan Cable; Editing by Hugh Lawson)

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Strong exports lift German factory activity to three-year high in February – PMI

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Strong exports lift German factory activity to three-year high in February - PMI 3

BERLIN (Reuters) – Higher demand from China, the United States and Europe drove growth in German factory activity to its highest level in more than three years in February, brightening the outlook for Europe’s largest economy, a survey showed on Monday.

IHS Markit’s Final Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of the economy, jumped to 60.7 from 57.1 in January.

It was the highest reading since January 2018 and came in slightly better than the initial “flash” figure of 60.6.

Factories have been humming along during the pandemic on higher foreign demand, helping the German economy avoid a contraction in the last quarter of 2020 and offsetting a drop in consumer spending amid a partial lockdown to contain COVID-19.

Many manufacturers reported higher demand from Asia, especially China, as well as the United States and European countries, with export sales posting their biggest increase since December 2017, the survey showed.

Phil Smith, Principal Economist at IHS Markit, said supply chain pressures intensified as more firms reported delays than ever before in nearly 25 years of data collection.

“There looks to be further upward pressure on inflation in the German economy from supply bottlenecks and a subsequent surge in manufacturing input costs,” Smith noted.

The survey suggested that supply disruption is making it more difficult to replenish stocks, which could complicate production in the coming months, he cautioned.

“Nevertheless, the overriding sentiment for the longer-term outlook is optimism, with a record number of manufacturers expecting to see output rise over the next 12 months.”

Still, economists expect the economy to shrink in the first quarter of this year due to a stricter lockdown, which has shut most shops and services since mid-December, and freezing temperatures that slowed construction activity in February.

(Reporting by Michael Nienaber; Editing by Hugh Lawson)

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