4 risks to the world economy

Financial Events

SHARE THIS STORY

The latest report from the ‘central bankers’ bank’ provides an excellent analysis of what might go wrong in the world economy over the next 2 – 3 years. Anyone interested in scenario planning will find its conclusions valuable. The Bank for International Settlements is the central bankers’ bank. Based in Basel, it contains some of the most expert analysts around. And because it is not attached to any one country, its comments tend to be more objective, as they don’t need to take account of particular political constraints.

The Bank’s newly published annual report is no exception. It notes that the consensus forecast amongst economists is that the ‘recent excellent global performance will continue’. But it then goes on to suggest that there are 4 main risks to this forecast:

• ‘First, a rise in global inflation pressures cannot be ruled out.
• Second, the current slowdown in the United States might prove more significant than expected and the global implications greater.
• Third, global current account imbalances, together with large and volatile capital flows, indicate an exposure to disruptive exchange rate changes with potential implications for financial markets as well as asset prices.
• And finally, with most asset markets already “priced to perfection”, any unwelcome shock might have unexpected consequences.’

It also adds that at the moment the allocation of resources in the US, China and Japan ‘has been moving resolutely in the wrong direction’. It argues that:

• In China and Japan, investment is still focused on export markets, and any economic shock in the Asian region would increase this emphasis as policy-makers sought to protect jobs. In turn, this would stoke protectionist fears in the western countries.
• In the US the recent ‘massive investment in housing has been unwelcome’, as this has not helped to boost the country’s tradable sector and reduce its external trade deficit.

As a result, it seems to imply that the US $ may need to decline more than currently expected, and the Chinese yuan and Japanese ¥ to rise higher, if the required ‘internal reallocation of capital and labour’ in these countries is to be achieved.

It then concludes a rather downbeat assessment of the risks by suggesting that whilst ‘international cooperation has improved in some areas, the political and institutional structure has not kept up with these changing global realities. There is still far too strong a tendency for national authorities to go it alone, and for international dialogue to go no further than that.’

Anyone preparing a strategy paper or budget forecast will find it useful to test their assumptions against a downside scenario based on the risks identified by BIS.

PREVIOUS POST

Hedge fund woes and the chemical industry

03/07/2007

The US Senate thinks the Amaranth hedge fund increased the costs of natural gas ...

Learn more
NEXT POST

What price oil?

05/07/2007

Crude oil prices are climbing again. $100/bbl is not impossible, if current geo-...

Learn more
More posts
China’s renminbi and the global ring of fire
01/09/2019

China’s property bubble puts it at the epicentre of the ring of fire © Reuters  China’s de...

Read
Stock markets risk Wile E. Coyote fall despite Powell’s rush to support the S&P 500
06/01/2019

How can companies and investors avoid losing money as the global economy goes into a China-led reces...

Read
Why everyone ignored my warnings ahead of the financial crisis
16/09/2018

It’s 10 years since my forecast of a global financial crisis came true, as Lehman Brothers col...

Read
High-flying “story stocks” hit air pockets as credit finally tightens
29/07/2018

“Nobody could ever have seen this coming” is the normal comment after sudden share price...

Read
London house prices slip as supply/demand balances change
22/07/2018

London house prices are “falling at the fastest rate in almost a decade” according to m...

Read
Financial markets party as global trade wars begin
03/06/2018

More people left poverty in the past 70 years than in the whole of history, thanks to the BabyBoomer...

Read
China’s lending bubble is history
27/05/2018

As China’s shadow banking is reined in, the impact on the global economy is already clear, as ...

Read
US Treasury benchmark yield heads to 4% as 30-year downtrend ends
22/01/2018

The US 10-year Treasury bond is the benchmark for global interest rates and stock markets.  And for...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more