Explaining the Low Level of Investment in Slovenia

This report analyses business investment in Slovenia and offers an explanation of why investment was hit more and longer after the global financial crisis relative to other European countries. Using macroeconomic data for all EU countries, Norway and Switzerland we find that Slovenian corporate investment was less responsive to the business cycle after the global financial crisis. In addition, the high deleveraging process in the Slovenian private sector has contributed to the lower investment in Slovenia compared to other European countries. This pattern is confirmed using a sector level approach. Furthermore, using confidential firm level data we find evidence of the granular nature of investment, where the largest Slovenian firms dominate the aggregate investment pattern. These are also the firms with a large debt overhang, which invest less, explaining the aggregate picture.