Though the investment-to-GDP ratio in the euro area is currently still 3.5 pp below its precrisis level, capital growth is projected to bounce back as the economy strengthens and accelerator effects take hold. However, there are two key risk factors to this outlook, both of which structural reforms can help mitigate.
The first is that pessimism among firms about future growth prospects continues to weaken the business case for higher investment. 5 years ahead growth expectations among forecasters have been falling continuously since 2001, from around 2.7% then to 1.4% today, which may have filtered through into “animal spirits”.