Markets
Visualizing the 700-Year Fall of Interest Rates
Visualizing the 700-Year Decline of Interest Rates
How far can interest rates fall?
Currently, many sovereign rates sit in negative territory, and there is an unprecedented $10 trillion in negative-yielding debt. This new interest rate climate has many observers wondering where the bottom truly lies.
Today’s graphic from Paul Schmelzing, visiting scholar at the Bank of England (BOE), shows how global real interest rates have experienced an average annual decline of -0.0196% (-1.96 basis points) throughout the past eight centuries.
The Evidence on Falling Rates
Collecting data from across 78% of total advanced economy GDP over the time frame, Schmelzing shows that real rates* have witnessed a negative historical slope spanning back to the 1300s.
Displayed across the graph is a series of personal nominal loans made to sovereign establishments, along with their nominal loan rates. Some from the 14th century, for example, had nominal rates of 35%. By contrast, key nominal loan rates had fallen to 6% by the mid 1800s.
Centennial Averages of Real Long-Term “Safe-Asset”† Rates From 1311-2018
% | 1300s | 1400s | 1500s | 1600s | 1700s | 1800s | 1900s | 2000s |
---|---|---|---|---|---|---|---|---|
Nominal rate | 7.3 | 11.2 | 7.8 | 5.4 | 4.1 | 3.5 | 5.0 | 3.5 |
Inflation | 2.2 | 2.1 | 1.7 | 0.8 | 0.6 | 0.0 | 3.1 | 2.2 |
Real rate | 5.1 | 9.1 | 6.1 | 4.6 | 3.5 | 3.4 | 2.0 | 1.3 |
*Real rates take inflation into account, and are calculated as follows: nominal rate – inflation = real rate.
†Safe assets are issued from global financial powers
Starting in 1311, data from the report shows how average real rates moved from 5.1% in the 1300s down to an average of 2% in the 1900s.
The average real rate between 2000-2018 stands at 1.3%.
Current Theories
Why have interest rates been trending downward for so long?
Here are the three prevailing theories as to why they’re dropping:
1. Productivity Growth
Since 1970, productivity growth has slowed. A nation’s productive capacity is determined by a number of factors, including labor force participation and economic output.
If total economic output shrinks, real rates will decline too, theory suggests. Lower productivity growth leads to lower wage growth expectations.
In addition, lower productivity growth means less business investment, therefore a lower demand for capital. This in turn causes the lower interest rates.
2. Demographics
Demographics impact interest rates on a number of levels. The aging population—paired with declining fertility levels—result in higher savings rates, longer life expectancies, and lower labor force participation rates.
In the U.S., baby boomers are retiring at a pace of 10,000 people per day, and other advanced economies are also seeing comparable growth in retirees. Theory suggests that this creates downward pressure on real interest rates, as the number of people in the workforce declines.
3. Economic Growth
Dampened economic growth can also have a negative impact on future earnings, pushing down the real interest rate in the process. Since 1961, GDP growth among OECD countries has dropped from 4.3% to 3% in 2018.
Larry Summers referred to this sloping trend since the 1970s as “secular stagnation” during an International Monetary Fund conference in 2013.
Secular stagnation occurs when the economy is faced with persistently lagging economic health. One possible way to address a declining interest rate conundrum, Summers has suggested, is through expansionary government spending.
Bond Yields Declining
According to the report, another trend has coincided with falling interest rates: declining bond yields.
Since the 1300s, global nominal bonds yields have dropped from over 14% to around 2%.
The graph illustrates how real interest rates and bond yields appear to slope across a similar trend line. While it may seem remarkable that interest rates keep falling, this phenomenon shows that a broader trend may be occurring—across centuries, asset classes, and fiscal regimes.
In fact, the historical record would imply that we will see ever new record lows in real rates in future business cycles in the 2020s/30s
-Paul Schmelzing
Although this may be fortunate for debt-seekers, it can create challenges for fixed income investors—who may seek alternatives strategies with higher yield potential instead.
Markets
Mapped: Europe’s GDP Per Capita, by Country
Which European economies are richest on a GDP per capita basis? This map shows the results for 44 countries across the continent.
Mapped: Europe’s GDP Per Capita, by Country (2024)
This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.
Europe is home to some of the largest and most sophisticated economies in the world. But how do countries in the region compare with each other on a per capita productivity basis?
In this map, we show Europe’s GDP per capita levels across 44 nations in current U.S. dollars. Data for this visualization and article is sourced from the International Monetary Fund (IMF) via their DataMapper tool, updated April 2024.
Europe’s Richest and Poorest Nations, By GDP Per Capita
Luxembourg, Ireland, and Switzerland, lead the list of Europe’s richest nations by GDP per capita, all above $100,000.
Rank | Country | GDP Per Capita (2024) |
---|---|---|
1 | 🇱🇺 Luxembourg | $131,380 |
2 | 🇮🇪 Ireland | $106,060 |
3 | 🇨🇭 Switzerland | $105,670 |
4 | 🇳🇴 Norway | $94,660 |
5 | 🇮🇸 Iceland | $84,590 |
6 | 🇩🇰 Denmark | $68,900 |
7 | 🇳🇱 Netherlands | $63,750 |
8 | 🇸🇲 San Marino | $59,410 |
9 | 🇦🇹 Austria | $59,230 |
10 | 🇸🇪 Sweden | $58,530 |
11 | 🇧🇪 Belgium | $55,540 |
12 | 🇫🇮 Finland | $55,130 |
13 | 🇩🇪 Germany | $54,290 |
14 | 🇬🇧 UK | $51,070 |
15 | 🇫🇷 France | $47,360 |
16 | 🇦🇩 Andorra | $44,900 |
17 | 🇲🇹 Malta | $41,740 |
18 | 🇮🇹 Italy | $39,580 |
19 | 🇨🇾 Cyprus | $37,150 |
20 | 🇪🇸 Spain | $34,050 |
21 | 🇸🇮 Slovenia | $34,030 |
22 | 🇪🇪 Estonia | $31,850 |
23 | 🇨🇿 Czech Republic | $29,800 |
24 | 🇵🇹 Portugal | $28,970 |
25 | 🇱🇹 Lithuania | $28,410 |
26 | 🇸🇰 Slovakia | $25,930 |
27 | 🇱🇻 Latvia | $24,190 |
28 | 🇬🇷 Greece | $23,970 |
29 | 🇭🇺 Hungary | $23,320 |
30 | 🇵🇱 Poland | $23,010 |
31 | 🇭🇷 Croatia | $22,970 |
32 | 🇷🇴 Romania | $19,530 |
33 | 🇧🇬 Bulgaria | $16,940 |
34 | 🇷🇺 Russia | $14,390 |
35 | 🇹🇷 Türkiye | $12,760 |
36 | 🇲🇪 Montenegro | $12,650 |
37 | 🇷🇸 Serbia | $12,380 |
38 | 🇦🇱 Albania | $8,920 |
39 | 🇧🇦 Bosnia & Herzegovina | $8,420 |
40 | 🇲🇰 North Macedonia | $7,690 |
41 | 🇧🇾 Belarus | $7,560 |
42 | 🇲🇩 Moldova | $7,490 |
43 | 🇽🇰 Kosovo | $6,390 |
44 | 🇺🇦 Ukraine | $5,660 |
N/A | 🇪🇺 EU Average | $44,200 |
Note: Figures are rounded.
Three Nordic countries (Norway, Iceland, Denmark) also place highly, between $70,000-90,000. Other Nordic peers, Sweden and Finland rank just outside the top 10, between $55,000-60,000.
Meanwhile, Europe’s biggest economies in absolute terms, Germany, UK, and France, rank closer to the middle of the top 20, with GDP per capitas around $50,000.
Finally, at the end of the scale, Eastern Europe as a whole tends to have much lower per capita GDPs. In that group, Ukraine ranks last, at $5,660.
A Closer Look at Ukraine
For a broader comparison, Ukraine’s per capita GDP is similar to Iran ($5,310), El Salvador ($5,540), and Guatemala ($5,680).
According to experts, Ukraine’s economy has historically underperformed to expectations. After the fall of the Berlin Wall, the economy contracted for five straight years. Its transition to a Western, liberalized economic structure was overshadowed by widespread corruption, a limited taxpool, and few revenue sources.
Politically, its transformation from authoritarian regime to civil democracy has proved difficult, especially when it comes to institution building.
Finally, after the 2022 invasion of the country, Ukraine’s GDP contracted by 30% in a single year—the largest loss since independence. Large scale emigration—to the tune of six million refugees—is also playing a role.
Despite these challenges, the country’s economic growth has somewhat stabilized while fighting continues.
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