ZURICH: Financial reform is urgently required to bolster global growth and overcome volatility, the Bank of International Settlements (BIS) said in its latest annual report over the weekend.
Warning of the danger of using debt to fuel growth, the BIS called for a “rebalance” in policy “to shift to a more robust and sustainable expansion.”
It said that the debt-fuelled growth model has caused an “inability to get to grips with hugely damaging financial booms and busts.”
But in a nuanced assessment, the BIS deemed the global outlook not entirely gloomy.
“The global economy is not doing as badly as the rhetoric sometimes suggests,” it added, saying growth was “in line with pre-crisis historical averages” and that unemployment had remained on the decline since the financial crisis broke in 2008.
Since the crisis began, governments have sought to push recovery through ultra-low interest rates and monetary stimulus, but growth and rock-bottom inflation have remained stubbornly low.
“There are worrying developments, a sort of ‘risky trinity,’ that bear watching” given a still anaemic recovery, said Claudio Borio, head of the BIS’ monetary and economic department.
It cited these as unusually low productivity growth, historically high global debt levels and “remarkably” narrow room for policy manoeuvre.
The BIS, the world’s oldest international financial organisation, helps cooperation between central banks.
In the report, BIS economists stressed that non-bank credit lines extended to emerging countries had doubled since 2009 to $3.3 trillion at the end of the final quarter of 2015.
But Borio said a “realignment” was now under way since the US Federal Reserve had begun tightening policy even amid outbreaks of market turbulence, an apparent nudge to the Fed to lift rates a little to allow room to manoeuvre in the event of a further downturn.
The BIS said investors, notably in China, retain concerns about their ability to pay down debt in a low growth environment and highlighted concern that as yet there is not sufficient sign of economic resurgence in developed economies.
The BIS also urged limiting generous Eurozone bank dividends which it said earlier this year were ultimately to the detriment of lending.