No Puzzle About Weak Business Investment: It’s the Economy!
IMF Blog, April 7, 2015
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Bibliographic details
- Authors: AQIB ASLAM, Daniel Leigh, Seok Gil Park
- Published: April 7, 2015
Key findings on causes of weak business investment
- Business investment is the largest component of private investment.
- In advanced economies, business investment contracted much more since the global financial crisis than after previous recessions.
- The contraction in output was also much more severe following the crisis than in previous recessions, so the joint behavior of business investment and output has not been unusual (see chart 1).
- Using a novel statistical approach that deals with reverse causality running from investment to output, the authors confirm that business investment has deviated little from what could be expected given the weakness in economic activity (see chart 2).
- Firms have reacted to weak sales—both current and prospective—by reducing capital spending.
- When businesses are asked about the main challenges facing them, they typically report lack of customer demand as the dominant factor.
Pockets of additional weakness and mechanisms
- There are pockets of puzzling investment weakness, particularly in euro area countries whose borrowing costs spiked during the 2010-11 sovereign debt crisis.
- In these countries, financial constraints and policy uncertainty have played an additional role, beyond weak output, in holding back business investment.
Policy implications and recommendations
- A comprehensive policy effort to expand output is needed to sustainably raise private investment.
- Fiscal and monetary policies can encourage firms to invest, although such policies are unlikely to return investment fully to precrisis trends.
- More public infrastructure investment could:
- spur demand in the short term,
- raise supply in the medium term, and
- “crowd in” private investment in countries where conditions are right.
- Structural reforms, such as those to strengthen labor force participation, could improve the outlook for potential output and thus encourage private investment.
No Puzzle About Weak Business Investment: It’s the Economy!, AQIB ASLAM, Daniel Leigh, Seok Gil Park, April 7, 2015.
Content in this bundle
- 商业投资低迷不存在费解：问题在于经济; iMFDirect博客; 2015年4月7日
- 弱い企業投資－難解な問題ではない。これこそ経済！アキブ・アスラム、ダニエル・リー、朴錫吉; iMFdirectブログ2015年4月7日掲載
- Chapter 4: Private Investment: What’S the Holdup?
- Нет ничего удивительного в слабых показателях деловых инвестиций: причина в экономике!
