Expect to see low interest rate environment for a long time: global economist

Insurers can expect to see interest rates remain low for a long time, global economist Josh Feinman said at the National Insurance Conference of Canada (NICC) on Sept. 27.
“There’s no sugar-coating it, we live in dangerous times,” said Feinman, global chief economist for DB Advisors/Deutsche Asset Management. “The economic [issues] we face around the world are very, very challenging. It’s going to take years to repair the damage that’s been done over the last three years.”
Feinman acknowledged a low-interest-rate environment is a major concern for insurers in a “post mortgage bubble world.” But insurers should not expect to see a quick recovery of investment rates because some of the economic issues in the market today are systemic and require long-term solutions.
The sovereign debt issue in Europe, for example, currently at the heart of investors’ fears of another global economic recession, is not going to be resolved until fundamental issues can be resolved.
For example, core and peripheral countries in the European Union are sharing a single currency, the euro, which makes it impossible for the European countries to address their individual economic woes through independent monetary policies, Feinman said. Thus, peripheral countries in the EU can’t regulate their currency to address the fact that they are producing more than they are consuming at home, whereas core countries in the EU like Germany can’t adjust their currency to account for the fact that they are consuming more than they are producing at home.
A long-term resolution would be a closer financial integration between the EU countries, but this is a tough sell politically, because it would require some loss of sovereignty, Feinman said.
In the meantime, lowering interest rates to promote economic growth remains a short-term solution for many countries.
“We cobble together a solution to resolve these strains, but it doesn’t resolve these issues in the short-term, so we get these flare-ups, these crises, on and off in these coming months and quarters,” Feinman said. “Muddling through is better than managing a system meltdown but renewed flare-ups [can be expected].”