From McKinsey Global Institute:
November 2013
| byRichard Dobbs, Susan Lund, Tim Koller, and Ari Shwayder
There is widespread consensus that the conventional and unconventional
monetary policies that world’s major central banks implemented in
response to the global financial crisis prevented a deeper recession and
higher unemployment than there otherwise would have been. These
measures, along with a lack of demand for credit as a result of the
recession, contributed to a decline in real and nominal interest rates
to ultra-low levels that have been sustained over the past five years.
A new report from the McKinsey Global Institute examines the
distributional effects of these ultra-low rates. It finds that there
have been significant effects on different sectors in the economy in
terms of income interest and expense. From 2007 to 2012, governments in
the eurozone, the United Kingdom, and the United States collectively
benefited by $1.6 trillion both through reduced debt-service costs and
increased profits remitted from central banks (exhibit). Nonfinancial
corporations—large borrowers such as governments—benefited by $710
billion as the interest rates on debt fell. Although ultra-low interest
rates boosted corporate profits in the United Kingdom and the United
States by 5 percent in 2012, this has not translated into higher
investment, possibly as a result of uncertainty about the strength of
the economic recovery, as well as tighter lending standards. Meanwhile,
households in these countries together lost $630 billion in net interest
income, although the impact varies across groups. Younger households
that are net borrowers have benefited, while older households with
significant interest-bearing assets have lost income.
Exhibit
Ultra-low interest rates have had distributional effects on interest income and expenses.
The impact that ultra-low interest rates have had on banks has been
mixed. They have eroded the profitability of eurozone banks, resulting
in a cumulative loss of net interest income of $230 billion between 2007
and 2012. But banks in the United States experienced an increase in
effective net interest margins and a cumulative increase in net interest
income of $150 billion. The experience of UK banks falls between these
two extremes....MORE
HT:
City A.M.
