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

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.