Extract From Bis 82 Annual Report

The world is now five years on from the outbreak of the financial crisis, yet the
global economy is still unbalanced and seemingly becoming more so as
interacting weaknesses continue to amplifyeach other. The goals of balanced
growth, balanced economic policies and a safe financial system still elude us.
In advanced economies at the centre of the financial crisis, high debt loads
continueto drag down recovery; monetary and fiscal policies still lack a
comprehensive solution to short-term needs and long-term dangers; and
despite the international progress on regulation, the conditionof the financial
sector still poses a threat to stability. From time to time, encouraging signs
raise hopes – but they are quickly dashed, delivering another blow to the
confidence of consumers andinvestors.
As many advanced economies have been struggling, emerging market
economies have been rising, in some cases fuelled by rapid credit expansion or
a vast wave of export-led growth. Thistwo-speed recovery generates large and
potentially destabilising current account imbalances and volatile gross capital
flows. The export boom in many emerging markets has crowded out the
developmentof more durable internal sources of growth, leaving countries
more vulnerable as growth begins to slow down. As the economic
developments of the past year (see Chapter II) have demonstrated, aselfsustaining
recovery in the advanced economies and a rebalancing of global
growth remain elusive.
In short, vicious cycles are distorting both advanced and emerging
economies. How can these viciouscycles be turned into virtuous ones? The
ongoing challenges of structural adjustment, monetary and fiscal policy risks,
and financial reform encompass the broad global threats that are still withus.
These four topics, and the steps needed to set the global economy firmly
on the path to sustainable long-term growth, are the focus of Chapters III–VI
in this Report. In the remainder of this...