Investment in the Euro Area: Why Has It Been Weak?

Investment in the Euro Area: Why Has It Been Weak?

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Investment across the euro area remains below its pre-crisis level. Its performance has been weaker than in most previous recessions and financial crises. This paper shows that a part of this weakness can be explained by output dynamics, particularly before the European sovereign debt crisis. The rest is explained by a high cost of capital, financial constraints, corporate leverage, and uncertainty. There is a considerable cross country heterogeneity in terms of both investment dymanics and its determinants. Based on the findings of this paper, investment is expected to pick up as the recovery strengthens and uncertainty declines, but persistent financial fragmentation and high corporate leverage in some countries will likely continue to weigh on investment.Ireland: Gross fixed capital formation (SA, millions of chained 2011 euro); source a€“ CSOI; Haver code ... G10. Capital stock series are from AMECO databasea€”the annual series were linearly interpolated so that the stock of capital in the lastanbsp;...

Title:Investment in the Euro Area: Why Has It Been Weak?
Author:Ms. Bergljot Barkbu, Pelin Berkmen, Pavel Lukyantsau, Mr. Sergejs Saksonovs, Hanni Schoelermann
Publisher:International Monetary Fund - 2015-02-19


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