Whereas capital deepening contributed at least 0.6 percentage points to annual growth in all those previous growth phases, its contribution to the current phase is approximately zero. This could explain why signs of capacity constraints are now emerging. Growth has largely been achieved by applying more labour to existing capital.
Firms should increasingly turn to capital to lift capacity – a process that has already begun as business investment has picked up and now stands above its pre-crisis level. Certainly the conditions are in place to further foster investment, including improving profitability and supportive financial conditions.