Dec. 9 (Bloomberg) -- The global economy faces an imminent end to three decades of low interest rates as emerging markets embark upon a building boom and aging populations drain savings, according to McKinsey & Co.
A shift toward investment and away from savings is set to drive up the cost of capital with long-term interest rates possibly starting to rise within the next five years, the research division of McKinsey, the international consulting firm, said in a study released today.
“Everyone who is in business has lived in a 30-year period when rates of interest have declined and that world is coming to an end,” said Richard Dobbs, a Seoul-based director of McKinsey Global Institute and co-author of the report.
While the researchers make no forecast for long-term interest rates, they estimated a return to their average since the 1970s would mean a 1.5 percentage-point increase. Costlier capital may mean that in the longer-run investors enjoy better returns from fixed-income investments and could reduce the value of equities, they said.
The McKinsey researchers estimated the investment rate of mature economies has declined since the 1970s, running $20 trillion less since the 1980s than if its rate had remained stable. They’re now betting the trend will reverse as worldwide investment increases from a recent low of 20.8 percent of gross domestic product in 2002 to more than 25 percent by 2030.