The Bank of International Settlements (BIS) on Sunday urged governments to allow growth trends toward long-term averages to target structural reform while warning against inflation and protectionist winds. In its annual report, the BIS said the growth outlook appeared more favourable than the anaemic climate of a year ago, Claudio Borio, head of its monetary and economic department, told reporters in a conference call.
"We had already stressed last year that the rhetoric being used to describe the global economy was too downbeat," said Borio, noting a strengthening of the global growth outlook, lower jobless tallies in major economies and inflation coming closer to target. "One good year has been sufficient for economic conditions to become the most favourable since the Great Financial Crisis (GFC)," said Borio in a report which noted that "raising the economy's growth potential is critical".
For Borio, "the problems we face are global. The solutions must be global too. It would be illusory to think and act otherwise". Borio further cautioned against higher inflation and debt, rising protectionism and timidity on investment. Taking into account fears on the consequences of globalisation, the BIS devoted a whole chapter in its report to the issue. For the BIS, "economic globalisation has contributed to a substantial rise in living standards and falling poverty over the past half-century" amid enhanced competition and new technologies driving efficiency gains.
But "like any other form of far-reaching economic change, globalisation poses challenges," notably rising income inequality, while "financial openness exposes economies to destabilising external influences," the report said. "Properly designed domestic policies can enhance the gains from globalisation and mitigate the adjustment costs. And international cooperation must supplement such policies in order to address global linkages." Overall, the BIS said it supported "rebalancing policy towards structural reforms, relieving an overburdened monetary policy, and implementing holistic policy frameworks that tackle more systematically the financial cycle".