The Bank of International Settlements on Sunday called on countries to lighten pressure on the world's central banks and to conserve fuel in case of more serious economic downturns ahead. Presenting the annual report of the Basel-based BIS, considered the central bank for central banks, chief Augustin Carstens warned that a number of factors were weighing on global growth and that "the slowdown appears to be worsening and spreading".
The recovery after the 2007-2008 global financial crisis has relied heavily on central banks using extraordinary monetary policies to restore and fuel growth.
But Carstens warned that "we have seen a slowdown in the pace of expansion since last year." "While the near-term outlook is still good, there are many vulnerabilities further out," he said, stressing the importance of "conserving some fuel to cope with possible headwinds." The BIS pointed to a number of challenges currently facing the global economy, including swelling debt levels and the ongoing trade tensions, largely attributed to US President Donald Trump's aggressive tariff policies.
"That's probably the main factor that is reducing global economic growth," Carstens told AFP in an interview. "Even though in a narrow sense they are concentrated in issues between a couple of countries - China, the US - they have an indirect effect in pretty much all the world economy," he said.
"Trade wars have no winners, only losers," he stressed in his presentation.
Carstens insisted that to ensure smooth sailing going forward, countries could not rely solely on the monetary policies put in place by central banks.
"A better mix is required between monetary policy, fiscal policy, macroprudential measures and structural reforms," he said.
The BIS has repeatedly urged governments to put in place true structural reforms, and has long warned that after a decade of extraordinary monetary policies, central banks have limited space to manoeuvre to boost economies.
"Monetary policy cannot be used on a permanent basis to get higher sustainable growth," Carstens said, in what could possibly be seen as a rebuke of the US president.
Trump has bitterly attacked the US Federal Reserve since last year, accusing it of tightening monetary policy too quickly and preventing what he says could be skyrocketing economic growth.
And last week he accused the Fed of acting like "a stubborn child" for not immediately cutting rates. Amid robust growth last year, the major central banks began gradually tightening their policies. But as trade weakened, many have put their course towards "normalisation" on hold.
The US Federal Reserve has signalled it could ease rates soon if the economic outlook deteriorates. The European Central Bank has also decided to put off expected rate hikes and has indicated lower rates could be on the horizon. Carstens cautioned Sunday that central banks face a difficult "balancing act" between "the risk of slowing to stall speed" and "the risk of burning fuel too fast."
"Monetary policy cannot be the engine of higher sustainable economic growth," he said, stressing that "more realistically, it is better regarded as a backstop."
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