In its annual report released on Sunday, the Bank for International Settlements said that near-term prospects are the best in a long time, but cited four risks:
“Over the past year, the global economy has strengthened further. Growth has approached long-term averages, unemployment rates have fallen towards pre-crisis levels and inflation rates have edged closer to central bank objectives. With near-term prospects the best in a long time, this year’s Annual Report examines four risks that could threaten the sustainability of the expansion in the medium term:
- a rise in inflation;
- financial stress as financial cycles mature;
- weaker consumption and investment, mainly under the weight of debt;
- and a rise in protectionism.
To a large extent, these risks are rooted in the “risky trinity” highlighted in last year’s Annual Report: unusually low productivity growth, unusually high debt levels, and unusually limited room for policy manoeuvre. Thus, the most promising policy strategy is to take advantage of the prevailing tailwinds to build greater economic resilience, nationally and globally. Raising the economy’s growth potential is critical. At the national level, this means rebalancing policy towards structural reforms, relieving an overburdened monetary policy, and implementing holistic frameworks that tackle the financial cycle more systematically. At the global level, it means reinforcing the multilateral approach to policy – the only one capable of addressing the common challenges the world is facing.”