ZURICH (AFP) – The Bank of International Settlements said Sunday the global economy risked a “relapse” of the crisis that rocked it a decade ago, warning there was little “medicine” left to treat the patient a second time.
“Things look rather fragile,” BIS chief economist Claudio Borio told reporters in a conference call.
“There is little left in the medicine chest to nurse the patient back to health or care for him in case of a relapse,” he warned.
The Basel-based BIS, considered the central bank for central bank, warned in its annual report that the recovery after the 2007-2008 global financial crisis had been “highly unbalanced”, with emerging economies especially facing mounting pressure.
Borio pointed out that central banks around the world had for years been administering “powerful medicine” to counter the effects of the crisis, with “unusually and persistently low interest rates.”
This, he said, had helped boost economic activity, “but some side effects were inevitable.”
– ‘Withdrawal symptoms’ –
He pointed for instance to the crises that have recently erupted in Argentina and Turkey, describing them as “withdrawal symptoms” as the central banks start cutting back the dosage.
After years of ultra-accommodating monetary policy, the US Federal Reserve has begun hiking interest rates, while the European Central Bank (ECB) recently announced it would end its stimulus programme at the end of this year.
But amidst this normalisation process, BIS noted a stark divergence between growth in the US market and the situation in emerging economies especially.
On average, Borio said, global financial markets were doing well.
But, he warned, “the average was not particularly meaningful. It was a bit like that proverbial person whose temperature, on average, was fine, except that their head was on fire and their feet freezing.”
“Will the patient continue to mend, as looked likely until the first quarter of this year, or will there be a relapse?” he asked.
“What one can say is that the patient’s full recovery will not be smooth… Policymakers and market participants should brace themselves for a lengthy and eventful convalescence.”
Full article: BIS warns global economy risks crisis ‘relapse’ (France 24).