Dhe low interest rate in the industrial nations has many fathers. These include demographic change, which is repeatedly named by well-known experts as the cause of the decline in interest rates in recent decades. But its meaning is not easy to assess. A new study gives an idea of the dimensions in Europe.
The influence of aging societies on interest rates is not clear from the outset, because there are two main reasons for falling interest rates, one reason for rising interest rates. Aging and shrinking societies are accompanied by a sinking supply of labor; in particular, a few young workers who are able to increase their productivity significantly are opposed by many older workers whose productivity is unlikely to increase.
This speaks in favor of falling interest rates as well as the willingness of many still active members of the baby boomer generation to make additional savings in the face of increasing life expectancy. Most people in their last ten years of work, when mostly home ownership is paid and children are out of the house, save more of their income than in other stages of their lives. The expectation of a long retirement contributes to the propensity to save.
On the other hand, many people age to save. Instead, they dispose of existing assets – sometimes voluntarily, by wanting to treat themselves in retirement; It is because they have to dissolve savings as a result of serious illness or long-term care. This tends to increase interest rates.
Future forecast: low interest rates
Even if the overall effect of demographic change on interest rates is not clearly determined in theory, almost all empirical studies conclude that the aging of societies as a whole justifies a lowering of the interest rate level. Such studies are mainly for the United States. In Germany, economists at the Institute of German Economics predict very low interest rates at least until 2050.
Demographic trends call them one of the causes of this trend. "Low interest rates are basically not bad news," says Markus Demary. "They make it easier to finance and help households build wealth in the form of real estate." However, decade-long interest rate forecasts necessarily carry a speculative tone.
Now the economist Andrea Papetti has the influence of Demographics are estimated at interest rates in the euro area. Such calculations are very complicated and involve uncertainties. According to Papetti's analysis, the demographic change between the years 1990 and 2030 is likely to depress the real, that is, the inflation-adjusted interest rate by between 0.4 and 1.7 percent. Demography therefore does not explain the decline in interest rates observed for decades alone.
But it is a cause that should not be underestimated, as a recent analysis by the investment company Pimco shows: In view of the similarity in demographic trends, a scenario was sketched in which Europe, like Japan, was in a phase of very low interest rates threatens to persist.
. (TagsToTranslate) demographics (t) Europe