Report
Real interest rates will remain abnormally low as long as wealth is abnormally high
We look at periods during which economic agents’ wealth (real estate and financial) has risen rapidly relative to their income (GDP) and become excessively high. Wealth has been abnormally high relative to GDP: In the United States, from 2004 to 2007 and then since 2013; In the euro zone, from 2004-2005; I n Japan, from 1988 to 1992 and since 2006. What happen s next? The wealth-to-GDP ratio must fall back to its normal level, which can only be achieved with a long period of negative real interest rates (returns on wealth). This suggests that today, real interest rates should be expected to be abnormally low as long as the wealth-to-GDP ratio has not normalised. At the current rate, this may take four years in the United States, 20 years in the euro zone and forever in Japan.
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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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