Fund manager fears global credit crunch will prolong recession

Helsinki — One of the biggest Nordic fund managers is worried credit might stop flowing across the globe if governments don’t step up their game.

Reima Rytsola, chief investment officer at Varma Mutual Pension Insurance in Helsinki, says he can see signs that financial conditions have tightened despite efforts by central bankers to provide emergency liquidity.

If the world sinks into a credit crunch, it “would draw out the recession significantly”, Rytsola said in an interview on Saturday. He’s now waiting for indications, especially in the eurozone, that governments are ready to add substantial fiscal stimulus given that the European Central Bank (ECB) “is out of ammunition”.

Germany, the biggest economy in the euro area, said on Friday it may drop its long-standing balanced budget policy to help pay for measures to stem the fallout of the coronavirus. The US has passed a bipartisan economic relief plan.

Rytsola said that the US package “creates faith that they’re able to operate also on the fiscal side”, but he fears that the measures announced so far “are not yet enough, until we find out the magnitude and duration of the coming shutdown”.