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Housing in Europe: are there any overheated markets?
Although the 2008 crisis seriously affected some European markets, housing prices have climbed in most Western European countries since the early 2000s, and even higher in most capital cities. If we compare these prices to household income or rent, the ratios have moved away from their long-term averages in Sweden, Norway, Belgium and the United Kingdom.
The overall trend of higher prices has been driven by a long-term decline in borrowing interest rates. This drop-off, paired with a slight increase in incomes, has kept real estate reachable to consumers. Still, with prices soaring, affordability has worsened since 2000 in Sweden and, to a lesser extent, in Switzerland, France and Belgium.
Population aging: Risk of deflation or inflation?
The world is going through an unprecedented phenomenon in terms of aging as a result of two forces: falling fertility and rising longevity. All countries are experiencing this shift, albeit to different extents and with different timings. Japan is at the forefront of the demographic changes, but the rest of the advanced world is now following in its footsteps as a lower birthrate in the past and continuing reductions in mortality begin to bite. Demographics in the advanced world are now at a turning point. According to the UN, the combined working-age population of the world’s advanced economies has probably peaked and is expected to fall by more than 5% in the next five decades. In China, the working-age population is expected to collapse by a third by 2065. At the same time, the share of these countries’ population aged 65 and over will skyrocket.
Emerging markets’ external debt: it’s the same old song?
The external debt in foreign currency of Emerging Market Economies has significantly increased over the last decade, supported by a low interest rates environment, emerging currencies appreciation, and rising commodity prices. Unlike previous episodes, this increase has mainly been driven by the non-financial private sector, rather than by governments and banks.
The heightened volatility of financial markets, triggered by the prospect of a tightening in Fed monetary policy and the drop in commodity prices, has increased risks related to this debt. Indeed, financial crises in EMEs are generally preceded by episodes of rising external debt.
US public debt: towards more domestic and private financing
From the early 2000s to mid-2008, the portion of US federal public debt held by non-residents rose from 30% to 50%, driven by the accumulation of international reserves by the central banks of emerging economies (led by China) and oil-exporting countries, periodic currency interventions by the Bank of Japan, and yen-dollar carry-trade transactions.
The surge in US public debt in the wake of the “Great Recession” of 2008 (+40 % of GDP), combined with Fed quantitative easing purchases led to a partial rebalancing of the investor base. Still, the portion of debt held by foreigners stayed at about 50%, with non-residents remaining highly active on the Treasuries market.
China: assessing the global impact of a Chinese slowdown
China's economic slowdown and its transition to a new growth model could adversely affect the world economy, due to China's large share in global trade and the high commodity intensity of its economic model. This paper assesses to what extent a Chinese slowdown would affect the global economy, with a focus on three transmission channels: trade, commodity prices, and financial markets.