Global economy faces instability from rising interest rates and inflation

The global economy is facing a period of instability characterized by rising interest rates and persistent inflation. Central banks, including the ECB and the FED, are implementing monetary tightening to combat inflation fueled by geopolitical shocks and supply chain disruptions.

In Japan, ten-year interest rates have exceeded 3% for the first time since 1996. In Europe, France faces rising risks with ten-year rates reaching 4.21%, while Germany's Bund yields are at their highest levels since 2011. The UK is seeing investor demands for a 5.23% premium on government borrowing.

For households, the cost of mortgages is increasing significantly. In France, average rates for 15 to 25-year loans rose in August to between 3.23% and 3.53%. Governments are also feeling the pressure; the US Treasury is estimated to spend between $1.2 and $1.3 trillion annually on interest alone, while France expects debt servicing costs to reach €64 billion by 2026.

Energy markets are adding to the strain. Inflation rose to 3.7% in August, driven by increases in oil, natural gas, and electricity prices. Geopolitical tensions, particularly regarding the US-Iran relationship and stability near the Strait of Hormuz, threaten to push Brent crude prices above $100 per barrel and keep natural gas at multi-year highs.