The savings-investment equilibrium and the structure of savings and financing after the coronavirus crisis

The borrowing requirements of euro-zone or OECD countries will be significant for a long time once the coronavirus crisis is over (due to the need to increase spending on healthcare, to help the onshoring of strategic industries and to support corporate investment); the same holds for companies’ borrowing requirements (due to the decline in profits, the reorganisation of value chains, the higher debt and the wage increases). The first issue is therefore the equilibrium between savings and investment (between financing capacity and borrowing requirements). Will the increase in household savings be large enough to cover the increase in the borrowing requirements of governments and companies? If the answer is no, long-term interest rates will rise to reduce these borrowing requirements. The second issue is the structure of savings and borrowing requirements. There will therefore be an increase in government and corporate debt issuance. Even if the overall volume of savings is sufficient, will savers accept this increase in the weight of government and corporate bonds in their assets (at the expense of money, equities, real estate, etc.)? If the answer is no, either central banks will have to continue to buy bonds and provide money to savers; or risk premia on government and corporate bonds will permanently rise. Two possible tensions will therefore have to be monitored: one linked to whether or not savings are sufficient, and one linked to the adjustments to the structure of savings.