data? is the glass half full or half empty? figures 1 and 2 suggest the glass is half full, as business investment has been recovering and reached pre - crisis levels. but we should also be wary of signals that suggest the glass might be half empty. given the ample cash holdings of non - financial corporations, and very favorable financing conditions, one would expect investment growth to have accelerated even further. to understand why investment growth has thus been weaker, i ’ ll turn to the second question. question 2 : what has been driving the observed developments in euro area business investment ( or why is investment growth not accelerating? ) before we look at the empirical evidence, i ’ d like to briefly discuss the two hypotheses that have gained currency : the secular stagnation hypothesis and the financial cycle hypothesis. according to the secular stagnation hypothesis posited by summers, the global economy faces a structural aggregate demand deficiency. and this is also likely to persist in the future. investment is not therefore accelerating because demand is structurally low. according to the financial cycle hypothesis, maintained by the bank of international settlements, the global economy is currently struggling with the adverse consequences of a financial slump. investment recovery has been suppressed because households, firms and governments have been deleveraging. the two hypotheses differ based on the length of the decline in investment. whereas the financial cycle hypothesis argues that investment is temporarily low, the secular stagnation hypothesis predicts permanently low investment. despite their differences, both hypotheses have a common denominator : demand. in particular, uncertain future global demand is seen as a key factor weighing on business investment growth. figure 3 : historical shock decomposition of real business investment growth percentage points - 5 - 10 - 15 foreign demand real lending rate real gross operating surplus real stock prices - 20 uncertainty * real consumption real business investment * average over various uncertainty indices ( consensus, policy, macro, financial, jurado et al. ) source : dnb let ’ s look at figure 3. it shows a historical shock decomposition for the netherlands based on a vector auto regression analysis, or var. we can see that business investment growth was largely driven by uncertainty shocks and foreign demand shocks, represented by the red and the blue bars, respectively. uncertainty is measured here as an average of various uncertainty indices. it has had a positive impact on business investment since 2013. foreign demand has had a negative impact on real business investment over that same period. these results therefore suggest

“ investment and investment finance in europe ” speech by klaas knot at the eib ’ s annual economics conference : ‘ investment and investment finance ’, luxembourg, 23 november 2017 investment is a key driver of future economic growth, and is therefore vital to the continuing expansion of the european economy. important challenges like investment in human capital and climate change call for substantial private and public investment. i would like to start by thanking the organizers for inviting me to speak at this year ’ s annual economics conference. i ’ m also glad i have the opportunity to discuss such an important subject with you. after all, investment is a key driver of future economic growth, and is therefore vital to the continuing recovery of the european economy. today, i ’ ll share my thoughts as a central banker on investment in the euro area. i ’ ll do so by addressing three main questions : first, is euro area investment currently too low? secondly, i ’ ll focus on business investment, and examine what its drivers are. lastly i ’ ll give my view on how public investment can be tailored to contribute to sustainable economic growth. question1 : is euro area investment too low? let ’ s start with the first question : is euro area investment too low? looking at figure 1, we see the development of real investment and its components in the euro area. the yellow line represents the level of real total investment. as you can see, total investment started to recover in early 2013. this was after a period of substantial contraction during the financial crisis and its aftermath. however, it has not yet recovered to pre - crisis levels, despite the unprecedentedly favorable financing conditions. figure 1 : business, residential and public investment in the euro area 2008q1 = 100 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 public investment housing investment source : ecb does that mean euro area real investment is too low? that depends on the type of investment we consider. it also depends on the benchmark used for comparison. i ’ ll elaborate both these points. firstly, total investment growth masks the heterogeneous development of its individual components. these have different implications for the future growth potential of an economy. figure 1 shows that although total investment is still clearly below pre - crisis levels, this is not true for non - residential private investment, which i ’ ll simply call business investment. as shown by the dark blue line, real business investment in the euro area has recently approached pre - crisis levels,