Global economic policy urgently needs rebalancing, the Bank for International Settlements (BIS) said on Sunday, as the world faces a “risky trinity” of high debt, low productivity growth and dwindling firepower at the world’s big central banks.
The BIS, an umbrella body for major central banks, said in its annual report that the global economy was highly exposed even before Thursday’s vote by Britain to leave the European Union.
“There are worrying developments, a sort of “risky trinity”, that bear watching,” said the head of the BIS monetary and economic department, Claudio Borio.
“Productivity growth that is unusually low, casting a shadow over future improvements in living standards; global debt levels that are historically high, raising financial stability risks; and room for policy maneuver that is remarkably narrow.”
He said the global economy cannot afford to rely any longer on the debt-fueled growth model that has brought it to the current juncture.
Despite sub-zero interest rates and trillions of dollars of stimulus, Europe and Japan’s central banks are struggling to lift inflation and growth. Markets have grown accustomed to that support, but they are growing concerned the firepower is mostly spent.
“Should this situation be stretched to the point of shaking public confidence in policymaking, the consequences for financial markets and the economy could be serious.”
In a separate speech, BIS head Jaime Caruana said major central banks would limit market turbulence as much as possible after Britain voted last week to leave the European Union.