Claudio Borio, the head of the BIS monetary and economic department, said a new recession could come “with a vengeance” and “the end may come to resemble more closely a financial boom gone wrong”.
Behind China's $1 trillion plan to shake up the economic order China sees surprise boost to exports but concerns remain over economy The BIS, which is sometimes known as the central bank for central banks and counts Bank of England Governor Mark Carney among its members, warned of trouble ahead for the world economy.
It predicted that central banks would be forced to raise interest rates after years of record lows in order to combat inflation which will “smother” growth.
The group also warned about the threat poised by rising debt in countries like China and the rise in protectionism such as in the US under Donald Trump, City AM reported.
Chinese corporate debt has almost doubled since 2007, now reaching 166 per cent of GDP, while household debt rose to 44 per cent of GDP last year.
In May, Moody's cut China's credit rating for the first time since 1989 from A1 to Aa3 which could potentially raise the cost of borrowing for the Chinese government.
The BIS’s credit-to-GDP gap indicator also showed debt, which is seen as an “early warning indicator” for a country’s banking system, is rising far faster than growth in other Asian economies such as Thailand and Hong Kong.
Brexit will make Britain worse off, Bank of England chief Carney says the world economy is still recovering from the financial crisis and the euro crisis which followed it in 2010.
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Livio S. Nespoli has been a broker, registered investment advisor, and financial publisher since 1985.