2 days ago
World economy faces ‘pivotal moment', central bank body BIS says
The BIS' annual report, published on Sunday, is viewed as an important gauge of central bankers' thinking, given the Switzerland-based forum's regular meetings of top policymakers.
Rising protectionism and trade fragmentation were 'particular concerning' as they were exacerbating the decades-long decline in economic and productivity growth, Carstens said.
There is also evidence the world economy is becoming less resilient to shocks, with population ageing, climate change, geopolitics and supply chain issues contributing to a more volatile environment.
The post-Covid-19 spike in inflation also seems to have had a lasting impact on the public's perception about price moves, a study in the report showed.
High and rising public debt levels are increasing the financial system's vulnerability to interest rates and reducing governments' ability to spend their way out of crises.
'This trend cannot continue,' Carstens said, referring to the rising debt levels, and he said higher military spending could further push up the debt up.
Hyun Song Shin, the BIS's main economic adviser, also flagged the sharp fall in the dollar. It is down 10% since the start of the year and on track to be its biggest H1 drop since the free-floating exchange rate era began in the early 1970s.
He said there was no evidence this was the start of a 'great rotation' away from US assets as some economists have suggested, but acknowledged it was too early to know as sovereign funds and central banks move slowly.
Shorter-term analysis, though, showed 'hedging' by non-US investors holding Treasuries and other US assets appears to have made an 'important contribution' to the dollar's slide over the past few months.
'We haven't seen anything (yet) that would give us any cause for alarm,' Shin added.
The BIS published one part of its report last week that gave a stark warning about the rapid rise of stablecoins.
In terms of the BIS' own finances, it said it made a net profit of 843.7m IMF SDR (R21.3bn), while its total comprehensive income reached a record high of SDR 3.4bn (R94.2bn) and currency deposits at the bank also reached a new high.
Carstens said: 'It is important the BIS has the highest creditworthiness out there.'
