Gross fixed capital formation in the euro area during the COVID-19 pandemic

Mirko Licchetta and Eric Meyermans

Quarterly Report on the Euro Area (QREA), 2022, vol. 20, issue 4, 17-28

Abstract: This section examines the impact of the COVID-19 pandemic on gross fixed capital formation (GFCF) across the euro area. Following the outbreak of the COVID-19 pandemic, the euro area entered an unprecedented recession that induced a sharp fall in GFCF in the first and second quarter of 2020. The contraction was much sharper than at the height of the global financial crisis, but it was very short lived and a strong rebound followed in the third quarter of 2020. In stark contrast with the period following the global financial crisis, the fall in private investment (as a share of GDP) was partially offset by a rise in public investment (as a share of GDP). The empirical analysis suggests that the extent of the lockdown measures to contain the spread of the virus and the country-specific structure of the economy along with other traditional drivers, in particular, falling output, can explain a large part of the contraction. The bold policy response at the national and EU level mitigated the impact of COVID-19 and supported the recovery. The faster-than-expected rebound in economic activity suggests that the negative economic impact of the pandemic will be more contained than initially feared. However, uncertainty over future health developments remains high, especially given the risks of new more transmissible variants.

Keywords: investment; lockdown measures; risks; excessive corporate debt burden; teleworking; euro area (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:euf:qreuro:0204-02

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