Investment in the Euro Area: Why Has It Been Weak?
IMF Working Papers, February 19, 2015
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Bibliographic details
- Authors: Bergljot B Barkbu, Pelin Berkmen, Pavel Lukyantsau, Sergejs Saksonovs, Hanni Schoelermann
- Published: February 19, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498364805.001
Summary findings
- Investment across the euro area remains below its pre-crisis level.
- Investment performance during this episode has been weaker than in most previous recessions and financial crises.
- Part of the weakness in investment can be explained by output dynamics, particularly before the European sovereign debt crisis.
- The remainder of the weakness is explained by:
- a high cost of capital,
- financial constraints,
- corporate leverage,
- uncertainty.
- There is considerable cross-country heterogeneity in both investment dynamics and their determinants.
Determinants of weak investment (as identified in the paper)
- Output dynamics (notably before the European sovereign debt crisis).
- High cost of capital.
- Financial constraints and credit rationing.
- Corporate leverage.
- Elevated uncertainty.
Cross-country heterogeneity
- Investment dynamics and the relative importance of determinants differ considerably across countries in the euro area.
Projections and outlook
- Based on the paper’s findings:
- Investment is expected to pick up as the recovery strengthens and uncertainty declines.
- Persistent financial fragmentation and high corporate leverage in some countries will likely continue to weigh on investment.
Subject classifications and keywords
- Subject: Currencies, Economic theory, Financial crises, Financial institutions, Financial services, Money, Neoclassical theory, Stocks, Yield curve
- Keywords: aggregate investment equation, area investment, cash flow, cost of capital, credit rationing, Currencies, equipment investment, Europe, investment, investment dynamics, investment equation, investment model, investment pattern, investment performance, Neoclassical theory, performance in Europe, Stocks, WP, Yield curve
IMF Working Paper: "Investment in the Euro Area: Why Has It Been Weak?" (Working Paper No. 2015/032, February 19, 2015).