Monday, 25 June 2007

BIS annual report

The Bank for International Settlements released its annual report yesterday. The overview is here. The following is a summary of the conclusion:

The consensus economic forecast expects the recent excellent global performance to continue. Yet at least four sets of concerns can be raised, even if our capacity to calculate both their likelihood and possible interdependence remains limited. First, a rise in global inflation pressures cannot be ruled out. Second, the current slowdown in the United States might prove more significant than expected and the global implications greater. Third, global current account imbalances, together with large and volatile capital flows, indicate an exposure to disruptive exchange rate changes with potential implications for financial markets as well as asset prices. And finally, with most asset markets already “priced to perfection”, any unwelcome shock might have unexpected consequences.

... [A]gainst a backdrop of concern about both overall global inflation and evidence of increasing financing imbalances in many areas, tighter monitoring and financial conditions would seem called for. Similarly, more fiscal restraint could have welcome short- and medium-term implications. Evidently, countries with large current account deficits should be in the forefront of such tightening moves. The chances of reducing global current account imbalances in an orderly way would also seem to be enhanced by more exchange rate flexibility, and by structural changes. Countries with current account deficits need to focus on the production of tradables, and those with surpluses on non-tradables. In this respect, neither the past strength of the housing sector in the United States nor the current strength of the export sector in Asia can be judged wholly welcome.

There are lots of charts in the actual report (PDF 244 pages, 7337 kb). Two of them taken from the chapter on monetary policy:

Notice any similarity between the charts?

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