2023-11-14 05:30:00
It now seems likely that the level of interest rates is not going to fall any time soon, a very dangerous situation. Because the persistence of high rates risks derailing growth. The dynamism of the American economy can be explained in part by the fact that consumers are spending what they saved during the pandemic. Once these savings are exhausted, they will feel the rise in rates more acutely, and therefore restrict their spending. The same type of problem will multiply elsewhere in the world.
Business bankruptcies are on the rise in Europe and the United States. And housing prices are falling, due to the rise in loan rates. Likewise, the budgetary largesse that has boosted growth will no longer be sustainable in a world of sustainable high rates. According to the IMF, Great Britain, France, Italy and Japan are expected to record deficits of around 5% of their GDP.
Hopes in artificial intelligence
As for the American deficit, it peaks at 7.5% of GDP, almost double what was forecast in mid-2022. Such public debt leaves you speechless. In the rich world it is higher, relative to GDP, than it has ever been since the Napoleonic Wars. With these tensions, it is difficult to imagine that the global economy would be able to combine what the markets expect today: no recession, low inflation, high debt and high interest rates.
The only hope to avoid a disillusioning tomorrow is a strong improvement in productivity that generative artificial intelligence will perhaps allow. The increase in income and tax revenues that it would bring about would make the high rates more sustainable. American productivity also seems to have improved in the third quarter. The potential of artificial intelligence perhaps explains why these monetary perspectives have not, for the moment, caused the stock markets to stumble.
But the threats persist. Donald Trump has announced hefty new customs taxes in case he returns to the White House. Governments are increasingly distorting markets through their industrial policies. And public spending is increasing due to demographic aging and the imperatives of the energy transition. Faced with such a situation, the world economy will not be able to continue operating in its current mode for long.
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