20180618-NATIXIS-High_debt_ratios_impose_wage_restraint__7页_723kb

Flash Economics Summary

Core Content

The document discusses the economic implications of historically high debt ratios in OECD countries and their impact on wage inflation and monetary policy. It emphasizes that rising interest rates due to inflation would increase the financial burden on indebted agents, potentially leading to economic instability. As a result, governments are compelled to implement wage restraint to prevent inflationary pressures, which in turn necessitates more flexible labour markets and a reduction in the share of wages in national income.

Main Points

• High Debt Ratios: OECD countries currently have historically high debt ratios, which are measured as a percentage of nominal GDP.
• Interest Rate Impact: A rise in interest rates would increase interest payments on public and private debt, thereby increasing the financial burden on indebted agents.
• Inflation Risk: A return of inflation would lead to more restrictive monetary policies and higher interest rates, which could have catastrophic effects on economies with high debt levels.
• Wage Restraint: To prevent inflation, governments must implement wage restraint, which involves making labour markets more flexible and reducing employees' bargaining power.
• Labour Market Flexibility: This includes reducing job protection, increasing atypical employment (such as part-time and temporary work), and de-unionisation.
• Wage Share Decline: A fall in the share of wages in national income is an inevitable consequence of high debt ratios and the resulting wage restraint measures.
• Economic Consequences: The combination of high debt and wage restraint leads to a decline in wage share, which is a direct effect of the need to prevent inflation and manage debt sustainability.

Key Information

• Charts: The document includes various charts that illustrate debt ratios, interest payments, and unit labour costs across OECD regions.
• Timeframe: The analysis is based on data up to 2018 and highlights trends since the 2008 financial crisis.
• Policy Implications: Governments must prioritize labour market flexibility to avoid triggering inflation and subsequent interest rate hikes.
• Disclaimer: The document is intended for professionals and qualified investors only, and is strictly confidential. It does not constitute a personalized investment recommendation and is based on public information.

Conclusion

The conclusion reiterates that high debt ratios in OECD countries will inevitably lead to a decrease in the share of wages in national income. This is due to the necessity of implementing wage restraint measures to prevent inflation and ensure the sustainability of debt levels, which in turn requires greater labour market flexibility.

Legal and Regulatory Notes

• The document is supervised and regulated by various financial authorities, including the European Central Bank (ECB), the Autorite de Contrôle Prudentiel et de Régulation (ACPR) in France, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority in the UK, and the Autorité des Marchés Financiers in France.
• It is not registered as a dealer in Canada and is only available to "wholesale" clients in Australia.
• In Hong Kong, it is distributed only to professional investors.
• The document does not constitute a financial analysis and is not subject to legal requirements promoting investment research independence.
• The views expressed in the document are those of the authors and do not reflect the views of Natixis or its affiliates.