The global economy risks a “relapse” of the crisis that rocked it a decade ago, the Bank of International Settlements (BIS) said on Sunday, warning there is little “medicine” left to treat the patient a second time.
“Things look rather fragile,” BIS chief economist Claudio Borio told reporters in a conference call. “There is little left in the medicine chest to nurse the patient back to health or care for him in case of a relapse.”
The Basel-based institution, considered the central bank for central banks, warned in its annual report that the recovery after the 2007-2008 global financial crisis has been “highly unbalanced,” with emerging economies especially facing mounting pressure.
Central banks around the world have for years administered “powerful medicine” to counter the effects of the crisis, with “unusually and persistently low interest rates,” Borio said, adding that it has helped boost economic activity, “but some side effects were inevitable.”
The crises that have erupted in Argentina and Turkey are “withdrawal symptoms” as central banks start cutting back the dosage, he said.
After years of ultra-accommodating monetary policy, the US Federal Reserve has begun hiking interest rates, while the European Central Bank has announced that it would end its stimulus program by the end of the year.
However, amid the normalization process, the BIS noted a stark divergence between growth in the US market and the situation in emerging economies.
On average, global financial markets are doing well, but “the average was not particularly meaningful. It was a bit like that proverbial person whose temperature, on average, was fine, except that their head was on fire and their feet freezing,” the bank said.
Asset prices in emerging economies have been hit by a stronger US dollar, as well as growing global trade tensions, the BIS said.
Signs of a slowdown in the Chinese economy, which has become an increasingly critical buyer for commodity producers, are also hitting emerging economies hard, it said.
At the same time, risky lending similar to what landed the world in the global financial crisis a decade ago is on the rise.
US dollar lending to non-banks in emerging economies “has actually more than doubled since the Great Financial Crisis to some US$3.7 trillion,” Borio said, adding that the number does not include borrowing through so-called foreign exchange swaps, “which could easily be of a similar order of magnitude.”
Borio also voiced concern about the situation in the US, pointing to the “red-hot” leveraged loan market, with banks “offloading their loans onto an eager investor base.”
Some of the loans are offloaded via collateralized loan obligations, which are “close cousins” of the infamous instruments known as collateralized debt obligations, and securities backed by residential mortgages, which sparked the 2008 crisis, Borio said.
The future was hard to foresee, he said: “Will the patient continue to mend, as looked likely until the first quarter of this year, or will there be a relapse?”
“What one can say is that the patient’s full recovery will not be smooth,” Borio said. “Policymakers and market participants should brace themselves for a lengthy and eventful convalescence.”
From the customer’s perspective, car rental is a straightforward business. The only uncertainty is whether the hire company will charge you for the scratch they discover when you hand back the vehicle. Hertz Global Holdings Inc’s bankruptcy protection filing on Friday last week was a reminder that today even the simplest business models are underpinned by a lot more financial complexity than meets the eye. The proximate cause of Hertz’s demise was of course the sudden collapse in bookings caused by COVID-19 travel restrictions. The company’s monthly revenue last month fell 73 percent year-on-year, a shortfall that even the most resilient
Uber Technologies Inc, Lyft Inc and Airbnb Inc have slashed thousands of jobs. Salesforce.com Inc and Visa Inc are letting employees work remotely for months; Twitter Inc and Square Inc are allowing them to do so for good. For the companies’ hometown of San Francisco, the moves are early signs of a dire blow. In a city with a long history of booms, busts and natural calamities, the COVID-19 pandemic has suddenly upended nearly a decade of prosperity. While municipalities across the US are grappling with economic fallout from the virus, San Francisco stands to take a deeper hit given its high
BULK PURCHASE: The French chain and Hong Kong-based Dairy Farm International reached a deal covering 224 stores, which is expected to be finalized by year’s end Carrefour SA yesterday announced it would acquire Wellcome Taiwan Co (惠康百貨) for 97 million euros (US$108.33 million), and bring all the Wellcome supermarkets (頂好超市) and Jasons Market Place stores nationwide under its banner within 12 months of the deal closing. The France-based hypermarket chain reached an agreement with Hong Kong-based Dairy Farm International Holdings (牛奶國際控股), the pan-Asian retailer that launched Wellcome Taiwan in 1987. The transaction involves 199 Wellcome supermarkets, which have average sales areas of 420m2 and 25 high-end Jasons Market Place stores, which have an average sales area of 820m2, as well as a warehouse in Taoyuan, Carrefour Taiwan (家樂福)
‘ONE-STOP SHOP’: A Miaoli official said that the factory in the Jhunan section of the Hsinchu Science Park would create more than 1,000 jobs and boost prosperity A new high-end IC packaging and testing plant planned by contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) in Miaoli County is expected to start operations in the middle of next year, Miaoli County Commissioner Hsu Yao-chang (徐耀昌) said. Hsu wrote on Facebook that TSMC, the world’s largest pure wafer foundry operator, would invest NT$303.2 billion (US$10.1 billion) to build the plant, the largest-ever single investment in Taiwan. However, TSMC declined to disclose the financial terms of the deal, while a company board meeting on May 12 approved a spending plan worth NT$168.2 billion as part of its investment plans. Construction of the