Investment in the UK in quarter 2 2009 fell by the largest amount since records began in 1965. Why has this happened and what does it tell us about the determinants of investment? Does it mean that businesses are short sighted or risk averse, or does the lack of investment reflect a lack of finance in the aftermath of the credit crunch. The following articles look at the data and what they signify.
British business investment plunges most in 44 years Telegraph (27/8/09)
Business investment falls sharply in Q2 Reuters (27/8/09)
Economy shrinks less than thought BBC News (28/8/09)
UK GDP contracts less than expected Telegraph (28/8/09)
For the ONS data see:
Business Investment: 10.4% down in second quarter 2009 ONS (27/8/09) and
Business investment: Provisional results – 2nd quarter 2009 ONS Statistical Bulletin (27/8/09)
Questions
- Chart the quarterly percentage change in business investment and quarterly economic growth on the same diagram. (See the second ONS link above and also Gross domestic product: Preliminary estimate – 2nd Quarter 2009 and GDP growth (revised estimate).
- Why has investment fallen so dramatically?
- Is the pattern of investment and GDP growth consistent with the accelerator theory?
- To what extent is investment a leading or a lagging indicator of economic activity?