Global economy has been made more fragile - Natixis

Patrick Artus, Research Analyst at Natixis, suggests that global banks have become more robust and corporate profitability is higher, which will contribute to resilience in the next crisis.

Key Quotes

“Overall the global economy has become more fragile as a result of:

• The very high level of debt (public and private), which could easily give rise to a borrower insolvency crisis in the event of a shock (increase in interest rates, fall in activity);
• The extremely high level of liquidity (the money supplied by central banks), which can give rise to drastic fluctuations in the prices of financial and real estate assets in the event of a shock, as large quantities of liquidity then shift to risk-free assets;
• The lack of leeway to conduct countercyclical economic policies, as the high level of public debt and fiscal deficits reduces the scope to use fiscal policy and the low level of interest rates and the high level of liquidity leads to very little room for manoeuvre for monetary policy.”

“All this means that a negative shock in the future would lead to a much more drastic fall in activity and recession than in the past.”