BIS warns global economy risks crisis ‘relapse’

ZURICH: The Bank of International Settlements said 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 20072008 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.”

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 ultraaccommodating 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.” Asset prices in emerging economies have been hit by a stronger dollar, as well as growing global trade tensions, BIS said. — AFP