BIS Warns Of Risk From Soaring Chinese Debt

Global growth is expected to be resilient in 2017, with advanced economies’ confidence indicators posting multi-year highs and EMEs clocking improved performances aided by higher commodity prices, notes the Bank for International Settlements. In its 87th Annual Report, the BIS report points out that the feared sharp slowdown in China didn’t materialize, thanks to timely support provided by authorities to its economy, but there remains great risks amid the ongoing Chinese debt buildup.

BIS Report – Globalization comes under a protectionist threat

The BIS report notes that the global economy has gathered momentum, amidst reduced unemployment rates and inflation readings moving closer to central bank objectives.

However, despite reaching the best near-term prospects in a long time, the report notes that globalization, as a powerful engine of world growth, has slowed and come under a protectionist threat. The BIS report touches upon four risks that could threaten the sustainability of global growth in the medium term: rising inflation, financial stress, weaker consumption and a rise in protectionism.

Describing the financial market sentiment as “remarkable,” the BIS report highlights a shift in the main forces that are driving the markets. For instance, politics took over from central banks after the Brexit vote and the U.S. election. The report notes that instead of broad-based swings between “risk-on” and “risk-off” positions, investors started to differentiate more across sectors and countries.

The BIS report highlights that despite virtually all major economies expanding by early 2017, shrinking measures of economic slack indicated that the expansion was maturing. The BIS report notes that consumption-led growth is less durable amid a rise in credit especially a Chinese debt buildup, and a rise in protectionism could challenge the open global economic order.