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Does risk aversion affect the real economy?
The war in Ukraine led to a sharp rise in risk aversion, the effects of which can be seen in financial markets (falling stock market indices, rising credit spreads). But does an increase in risk aversion also have an impact on economic agents’ behaviour and on the real economy? When risk aversion rises we would expect the following: A rise in the household savings rate; A fall in housing purchases; A fall in corporate investment. If this is the case, the war in Ukraine will have very negative effects on growth, far greater than the mechanical effects of inflation and loss of purchasing power. In the past, a rise in risk aversion in the United States and the euro zone had an impact only on housing investment, particularly in the United States, but not on the household savings rate or corporate investment. However, the nature of the risk (a war) is different today.
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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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