Innovation helps companies perform better during economic downturns

A recent JRC study reveals that in 2020 innovation helped EU companies to mitigate the negative effect of the Covid-19 pandemic. On average innovative firms face a drop in performance that is only half as big as for non-innovative ones. Such findings strongly highlight the importance of innovation in times of crisis and the relevance of policies to support innovation during downturns.

The study aims to contribute to better understanding the Covid-19 effect on EU firms’ decisions to innovate and on their growth performance. The analysis was conducted with data from the Survey on the Access to Finance of Enterprises (SAFE) covering the period 2009-2020. The SAFE is conducted bi-annually jointly by the European Central Bank and the European Commission, since 2009.

Results show that the growth likelihood of EU firms was more affected by the Covid-19 pandemic (2020) than by previous economic downturn (2009). Although innovative firms see the probability of an increase in turnover also affected by the Covid-19 crisis, they are less affected than non-innovative ones. The pandemic made innovation twice as critical for companies’ growth as before the crisis. Furthermore, the difference in term of performance between innovative and non-innovative firms was also higher in 2020 than in 2009. Findings suggest that innovation was more important than ever for firms to mitigate the negative effect of the Covid-19 pandemic.

Although, EU firms have innovated less than the average (2009-2020) and less than in previous economic downturn (2009), not all types of innovations (product/service, process, organisation or/and marketing innovation) were affected in the same way. Changes in the innovation patterns in 2020 are essentially observed regarding organisation management and marketing innovations, showing how EU firms have reacted to overcome the negative effects of the first year of the Covid-19 crisis.

The result of the JRC study emphasises that innovation remains at the heart of competitiveness, resilience and recovery of the EU economy, especially when facing the effects of the present pandemic crisis. The EU should strengthen its own capacity and autonomy, especially in strategic areas. By building on the opportunities of a fully functioning Single Market, competition policy, Industrial Policy and Trade Policy, the EU could facilitate open and dynamic markets that promote innovation and consumers’ confidence. Instruments tailored to mitigate the economic and social impact of the COVID-19 crisis such as NextGenerationEU represent a cornerstone opportunity (also) for the private sector.

More information

• Full report available here.
• Policy brief with non technical details available here.

Related Content

• The impact of Covid-19 and of the earlier crisis on firms’ innovation and growth: a comparative analysis.
• COVID-19 effect in firms’ innovation and growth in the EU.