{
  "title": "Investment in the Euro Area: Why Has It Been So Weak?",
  "publication": "IMF Blog, February 19, 2015",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2015/02/19/investment-in-the-euro-area-why-has-it-been-so-weak",
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  "summary": "Authors: Bergljot Bjørnson Barkbu, S. Pelin Berkmen, Hanni Schölermann",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Authors: Bergljot Bjørnson Barkbu, S. Pelin Berkmen, Hanni Schölermann\n- Date: February 19, 2015\n- Core finding: Investment in the euro area, particularly private non-residential investment, has not recovered since the onset of the global financial crisis and fell more drastically than in many prior financial crises."
    },
    {
      "heading": "Key drivers of weak investment",
      "content": "- Low or negative growth:\n  - Creates a \"Catch 22\": investment is low because firms lack demand, and growth is weak partly because investment is low.\n  - Particularly pronounced in Spain, where changes in real GDP explain variation in investment well.\n- Crisis legacies that further depress investment:\n  - High corporate leverage / indebtedness impairs creditworthiness and borrowing ability (noted for Portugal, Italy, France).\n  - Policy uncertainty reduces firms' willingness to invest (important in Spain, Italy, Greece, Ireland, and the euro area as a whole).\n  - Borrowing constraints and difficult access to bank finance (noted for Italy and Portugal).\n  - Financial constraints vs. cash financing: some firms use internal cash flows to finance investment, with higher cash inflows associated with more investment in Spain and Germany."
    },
    {
      "heading": "Quantitative findings",
      "content": "- Cumulative unexplained shortfall in investment (difference between investment predicted by output changes alone and actual level of investment):\n  - Ranges between 3 and 6 percent of GDP when only output changes are considered.\n  - Narrows to ½ -2 percent of GDP when additional factors are included (uncertainty, indebtedness, borrowing costs, cash buffers, financial constraints).\n- Country example:\n  - In Italy and Portugal, the unexplained shortfall declines from about 6 percent of GDP to less than 1 percent of GDP when accounting for the additional factors."
    },
    {
      "heading": "Implications and policy recommendations",
      "content": "- Short-term demand support:\n  - Investment should pick up as the recovery strengthens.\n  - Continued accommodative monetary policy and the use of available fiscal space at the national level can help support investment by raising current demand.\n- Address crisis legacies and financial impediments:\n  - Dealing with corporate debt overhang and high non-performing loans should be a priority, as indebtedness impedes investment.\n  - Improve firms’ access to capital and lower borrowing costs.\n  - Complete the banking union and build a capital markets union to boost investment prospects.\n- Structural and regulatory reforms:\n  - Make financial intermediation more effective.\n  - Implement more flexible labor and product markets.\n  - Undertake reforms to improve the business environment to raise growth expectations and reduce policy uncertainty.\n- Overall approach:\n  - A comprehensive policy effort to reduce policy uncertainty, revive \"animal spirits,\" and contribute to a sustained recovery in investment.\n\nSource: Investment in the Euro Area: Why Has It Been So Weak? — https://www.imf.org/en/blogs/articles/2015/02/19/investment-in-the-euro-area-why-has-it-been-so-weak\n\n---\n\n Content in this bundle\n\n- wp1532\n  - wp1532 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp1532 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- October 2014 World Economic Outlook\n- https://www.imf.org/wp-content/uploads/2015/02/eur-weak-investment-chart-1.jpg\n- https://www.imf.org/wp-content/uploads/2015/02/eur-weak-investment-chart-2.jpg\n- on the euro area\n\nSource: https://www.imf.org/en/blogs/articles/2015/02/19/investment-in-the-euro-area-why-has-it-been-so-weak"
    }
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    "Authors: Bergljot Bjrnson Barkbu, S Pelin Berkmen, Hanni Schlermann",
    "Published: February 19, 2015",
    "Authors: Bergljot Bjørnson Barkbu, S. Pelin Berkmen, Hanni Schölermann",
    "Date: February 19, 2015",
    "Core finding: Investment in the euro area, particularly private non-residential investment, has not recovered since the onset of the global financial crisis and fell more drastically than in many prior financial crises.",
    "Low or negative growth:",
    "Crisis legacies that further depress investment:",
    "Cumulative unexplained shortfall in investment (difference between investment predicted by output changes alone and actual level of investment):",
    "Country example:",
    "Short-term demand support:",
    "Address crisis legacies and financial impediments:",
    "Structural and regulatory reforms:",
    "Overall approach:",
    "**wp1532**",
    "[October 2014 World Economic Outlook](http://www.imf.org/external/pubs/ft/weo/2014/02/)",
    "[https://www.imf.org/wp-content/uploads/2015/02/eur-weak-investment-chart-1.jpg](https://www.imf.org/wp-content/uploads/2015/02/eur-weak-investment-chart-1.jpg)",
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    "[on the euro area](http://www.imf.org/external/ns/cs.aspx?id=317)"
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