Uncertainty leads to postponement of investment projects and a bias towards investments with short-term returns, at the expense of projects  2  BIS central bankers’ speeches  which may potentially impact on economic growth, but whose returns tend to be long-term; •  Secondly, by the increase in risk premia, which increases the economy’s financing costs and, in extreme cases, results in the interruption of financing;  •  Thirdly, by the fact that high debt levels constrain the counter-cyclical use of budget policy, which in the presence of hysteresis, may have lasting effects on the economy’s productive capacity, due to the depreciation of human capital and insufficient investment in physical capital.
Here I would like to take a moment to mention the following: It is odd that the intense public debate on the relationship between budgetary policy and economic growth, recently rekindled following publication of a box in the latest edition of the IMF’s World Economic Outlook, has focused only on the size of the short-term budgetary multipliers, when the wider and more dynamic view of the problem, which considers the negative effects of the macroeconomic uncertainty and the high indebtedness levels on growth, is also widely covered by the IMF in the same report.