The Challenge of Economic Rebalancing in Europe
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The Challenge of Economic Rebalancing in Europe

Perspectives for CESEE Countries

Edited by Ewald Nowotny, Doris Ritzberger-Grünwald and Helene Schuberth

In the long aftermath of the acute global financial crisis of 2008/09, “rebalancing” the economy with new sources of growth and productivity remains a persistent necessity. This book addresses the resulting trade-offs and challenges. These needs, and the corresponding policy challenges, are especially prevalent in Europe, in particular Central, Eastern and South-Eastern Europe. On this issue, this book contributes lessons learned from earlier balance sheet recessions. It also addresses the often overlooked link between macroeconomic imbalances and economic inequality. Further contributions focus on the interaction between monetary policy and financial stability, adding a regional perspective to these important issues.
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Chapter 6: Post-crisis recovery in slow-motion mode: the role of the non-financial corporate sector

Martin Gächter, Martin Geiger, Florentin Glötzl and Helene Schuberth


The aftermath of the global financial crisis that started in 2008 is characterized by a very sluggish economic recovery, particularly due to the weakness of corporate investment. Against this backdrop, we examine the role of private sector balance sheet repair – particularly in the non-financial corporate sector – as a drag on investment. Sectoral deleveraging needs may seriously impair investment expenditures, and thus might have long-term effects on potential growth rates. In 2013, the average level of real gross fixed investment in the European Union (EU) and the euro area was still 17 per cent and 18 per cent, respectively, below the peak reached in 2008 (European Commission, 2014). The decline in investment has been particularly large in stressed economies of the euro area, where investment has fallen by up to more than 50 per cent, while the fall has been less severe in Central, Eastern and South-Eastern Europe (CESEE). A consensus view seems to be emerging that this extraordinary decrease in investment activity is caused by the combined effect of credit constraints and demand-driven factors, and that the associated negative feedback loops push some of the countries into a balance sheet recession. In this context, demand-driven factors, such as the balance sheet position of firms (and households) per se may exercise an impact on investment decisions, irrespective of the existence of credit constraints.

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