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As long as long-term interest rates are significantly lower than growth rates, all is well, but for how long?
As long as long-term interest rates are significantly lower than growth rates: Public debt ratios decline even with a large primary fiscal deficit; Asset prices (equities, real estate prices, corporate value) are boosted and recover quickly after downward shocks. The question is therefore how long this pattern of below-growth long-term interest rates will last. This configuration prevents debt crises and lasting declines in wealth. It can be threatened by: Rising interest rates (high inflation, decline in savings relative to investment, due to the complication of a change in central banks’ behaviour); A decline in growth (if there is another recession). The question is: what will be the first factor that will drive interest rates up to the level of growth rates, and when will that happen?
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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