Investment Drivers and Shocks’ Geometry in Greece

This study outlines how investment activity evolved in Greece over the last decade and explores its momentum before and after the COVID-19 pandemic era. We concluded that the L-geometry of the 2009-2016 recession has been determined to a great extent by the fact that fresh investment was lower than capital depreciation for a long period after the initial shock. Although investment spending has shown signs of recovery, its further expansion is not expected before 2021 due to the new economic crisis induced by the pandemic. However, although it is anticipated to push the Greek economy into a deep recession in 2020, the new crisis is vastly different from that of 2009 in both shape and duration, and thus it is not anticipated to have long-lasting effects. Exploring its driving forces in Greece, we find that investment activity is inseparably related to economic growth. To examine the relationship between private investment growth and its main drivers, we employ a time-series estimation with quarterly data ranging from 2001Q2 to 2019Q4. Our empirical findings indicate that GDP growth, economic sentiment and real credit growth have a positive and statistically significant impact on private sector investment growth. Conversely, the real interest rate, corporate income taxation and the debt to GDP ratio adversely affect private investment growth