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The world economy isn’t yet on the cusp of a global recession, according to the head of the Bank for International Settlements, often referred to as the central bankers’ central bank.
“It has certainly slowed down. It has slowed down markedly,” BIS General Manager Agustin Carstens told Bloomberg Television Wednesday. “There are some models that show the probability of recession has increased, but it’s still far from being something sure.”
Still, Carstens warned that policy makers need to tread a fine line as they renew easing in order to avoid building up future risks.
“Central banks have to be very skillful in basically working out the adequate balance,” he said in an interview from Hong Kong. “If we go too far in terms of negative rates of interest, allowing too much search for yield, that might induce a situation where the threats to financial stability in the future might start appearing.”
Central banks worldwide are grappling with how to respond to weaker growth as U.S. President Donald Trump’s trade wars fuel uncertainty for consumers and businesses. The Federal Reserve in July cited the outlook for such global developments as it cut interest rates for the first time in a decade, and is expected to again reduce borrowing costs Wednesday, U.S. time.
“The elephant in the room, especially in this region, is trade policy,” said Carstens, who previously headed the Mexican central bank. “If we had a different trade policy, central banks would not be pushed so much toward accommodative monetary policy and therefore monetary policy will need to deplete its policy space.”
The global economic outlook is dimming ahead of next month’s annual meetings of the World Bank and the International Monetary Fund.
The IMF is preparing to update its growth forecast in the new World Economic Outlook. In July it cut the projection for this year to 3.2%, the lowest since the financial crisis.
