Investment dynamics in the euro area: drivers, composition and cross-country differences

Tiziano Ropele () and Giordano Zevi ()
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Tiziano Ropele: Bank of Italy
Giordano Zevi: Bank of Italy

No 1059, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper provides a comprehensive empirical assessment of investment developments in the euro area and its four largest member economies over 1996-2025, using National Accounts data disaggregated by country, asset type, and sector. Investment dynamics are tightly synchronised during systemic downturns, while recoveries are markedly heterogeneous. A shift-share decomposition shows that persistent cross-country differences in investment growth are driven mainly by within-category performance rather than by differences in allocation across assets and sectors. At the same time, investment is gradually shifting towards intangible assets, with intellectual property products displaying a sustained upward trend largely independent of the business cycle. An augmented accelerator model identifies economic activity as the main driver of investment fluctuations, with financial conditions exerting a significant influence - especially for construction - and confidence and uncertainty playing a complementary role at cyclical turning points. Estimated elasticities vary substantially across countries and asset classes, pointing to heterogeneity in shock transmission within the monetary union. A historical decomposition highlights cross-country differences in recent dynamics, with Germany's weakness reflecting structural and supply-side factors, and Italy's post-2019 recovery also driven by fiscal measures. More broadly, the post-2022 period is characterised by a generalised weakening in investment, consistent with tighter financial conditions and heightened geopolitical uncertainty.

Keywords: investment; euro area; accelerator model; financial conditions; economic uncertainty; cross-country heterogeneity (search for similar items in EconPapers)
JEL-codes: D22 E22 E32 F13 F14 F45 G21 O16 (search for similar items in EconPapers)
Date: 2026-09
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