The global economy looks shaky and central banks could be powerless in a worst-case scenario, according to the bank’s head of the department for international payments and monetary policy.
Claudio Borio has been criticizing the soft monetary policy for a long time, and he underlined one more time that central banks are too much burdened after the global financial crisis. According to the latest quarterly BIS overview, side effects are unavoidable including market turmoil which has been noticed in the developing countries as the impact of the Federal Reserve tightening and dollar strength. This also means the inability of central banks to face the next recession, taking in count their exhaustion.
“As far as the interest rates are still unusually low, and central banks’ balance sheets are swollen as never before, there is not much left in the first-aid kit to look after the patient or cure him in case of relapse. Besides that, the fever is getting worse due to the politic and social reaction at the globalization process and multilateralism”.
OECD has been warning last week that trade tensions and emerging markets volatility mean that the global economic growth is getting close to a plateau, however, recovery continues. In Borio’s opinion, whatever happens, the path would not be easy and that is the payout for years of too much stimulus. According to his words, the latest market turbulence is “similar to the patient’s abstinence symptoms”.
Developing markets troubles are coming in a huge contrast with the current situation in developed countries, and the main U.S. stock benchmarks reached new high levels last week. This could be another reason to worry.
“Market quotes in countries with developed economies are still on higher levels while the financial conditions are still too soft, - Borio said. - The main thing is that there are too many debts around… Monetary officials and market players should get ready for a durable recovery process, full of different events”