The chain of events leading financial markets to decouple from the real economy

I n OECD countries , financial markets are set to decouple from the real economy under the effect of the following series of events : While the economic recovery is vigorous in the short term , thanks to consumption, potential growth will be reduced by a number of mechanisms. The level of GDP will therefore fall increasingly below what it would have been without the COVID crisis; If inflation normal ises (due to the upturn in demand, rising commodity prices, health regulations and later structural mechanisms), central banks will continue their yield curve control, lead ing to persistently negative real long-term interest rates; Persistently negative real long-term interest rates will lead to a sharp rise in asset prices (equities, real estate, corporate bonds) as soon as the health uncertainty subside s , leading asset prices to decouple from the real economy.