Post-crisis investment: back to normal? Pre, during and post-crisis developments in investments Debby Lanser, Marco Ligthart Jason Rhuggenaath CPB Netherlands Bureau for Economic Policy Analysis
Investment suffered a severe blow Fig 2.1 CPB Netherlands Bureau for Economic Policy Analysis
Business and housing investment at its core Fig 2.3 CPB Netherlands Bureau for Economic Policy Analysis
Decline mainly due to business and housing investment Pre-crisis Crisis After crisis 2013 Post- and average average average pre-crisis (1995-2007) (2008-2010) (2011-2013) difference OECD18 total (b) 22.4 20.5 20.1 20.1 -2.3 OECD18 housing 5.1 4.0 3.9 4.0 -1.1 OECD18 public 3.6 3.7 3.4 3.2 -0.4 OECD18 business 13.6 12.8 12.8 12.7 -0.9 • Business and residential investment are mainly responsible for the decay • Each accounts for 40 percent • Public investment accounts for the remaining 20 percent. CPB Netherlands Bureau for Economic Policy Analysis
Investment rate will return to its optimal value Where will we be heading for after the crisis? • The investment rate will recover to its optimal value. • The long-term investment rate might be lower than its pre-crisis value due to the unsustainable nature of housing investment • The optimal investment volume will likely be lower, as output suffered a permanent loss CPB Netherlands Bureau for Economic Policy Analysis
A sluggish recovery Several factors will affect the speed of recovery: • the legacy of the crisis still casts its shadow, – large debt overhang – low inflation – low interest rates close to a zero lower bound • the large role of residential investment • credit supply restrictions • higher perceived uncertainty (now almost obsolete) CPB Netherlands Bureau for Economic Policy Analysis
R&D investments were relatively spared CPB Netherlands Bureau for Economic Policy Analysis
R&D and expenditures on education were spared • R&D investments and educational expenditures are key factors to economic growth. • R&D investments and educational expenditures have been relatively spared by the crisis. • The average OECD R&D investment rate rose from 2.2 percent in 2003 to 2.5 percent in 2013. • The real expenditures on education, measured per student, increased as well. CPB Netherlands Bureau for Economic Policy Analysis
Conclusions • Investment suffered a severe blow mainly due to business and residential investment • R&D investments and educational expenditures were spared • The investment rate will likely recover, though sluggish, as – Post crisis slump – Still apparent credit constraints (mainly for SMEs) – The large role of residential investment in the decay • Downloadable: http://www.cpb.nl/en/publication/investment-in-the-oecd-pre-and- post-crisis-developments CPB Netherlands Bureau for Economic Policy Analysis
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