If the price falls, demand rises, and this also applies to credit. As interest rates fall, debt rises across the globe. The regional distribution differs though. In emerging markets, there has been an increase in corporate debt in particular, while governments have been cautious. The situation in the industrialised countries is the opposite. Here, governments have taken advantage of low interest rates to increase debt, while companies are more reticent. In Germany in particular, companies have taken advantage of the good economic environment and improved their financial ratios. This is likely to have a positive impact in the future, as economic growth slackens.
There are also new developments. A private consortium around Facebook announced in recent days that it will introduce a new crypto currency by the name of Libra. Central banks, regulators and politicians are reacting nervously to this news, and not without good reason. With over 2 billion users, the theoretical customer potential on Facebook is huge. Of course, there are still some technical difficulties to be overcome and regulatory issues such as money laundering have also yet to be resolved. But once these hurdles have been surpassed, Libra could end up changing current structures in the established banking system significantly over the medium term. Payment transactions, in particular, but also all other parts of the banking system are potentially affected. Central banks could also lose some of their influence. It’s no wonder then that the reaction has been very nervous to this development.
This weekend, the G20 meeting will take place. Expectations are high. Whatever the outcome, it is unlikely to accelerate global growth sustainably. The economic cycle is slowly coming to an end.