27.7.19

Global economy moving into unsettling phase: Das

The global economy seems to be moving into a new and unsettling phase, marked by stressed trade negotiations, rising geopolitical confrontations and limited policy space, besides high debt levels in several economies, said Reserve Bank of India governor Shaktikanta Das.

The RBI governor pointed out that general government debt of advanced economies, as a group, has surpassed 100% of the gross domestic product, along with constrained fiscal space in many of these countries. “It is important in the backdrop of slowing global growth that policies of monetary and fiscal authorities are well-calibrated so that they support growth without further build-up of leverage and asset price bubbles,” said Das.

He added that prudent policies are critical to growth with macroeconomic stability. Das called for a focus on policy and to judiciously use it while simultaneously undertaking structural reforms to improve productivity, innovation and job creation. The coming year, he said, will test the IMF for its policy advice in these areas. “The global order today faces several challenges that will test the skills of the international organizations, as well as those of national monetary and fiscal authorities. International coordination has become somewhat weaker in the very recent years,” he said.

According to Das, many advanced economies have been pursuing low interest rate policies for long, without adequate recognition of their impact. He said that at the global level, the total amount of bonds with negative yields has risen to nearly $13 trillion; implying that nearly onethird of advanced economies’ government bonds trade at negative yields. “Return to lower interest rates in advanced economies poses challenges, as leverage has already built up in the emerging market economies, and the needed deleveraging is not complete in many European economies. Amid low global interest rates, total credit to the non-financial sector in the emerging market economies went up from 107.2% of GDP at the end of 2008 to 194. 4% of GDP by March 2018, before it dropped to 183.2% at the end of 2018,” he added.

Das said net private capital flows to emerging market economies in the form of direct and portfolio investments have also nearly doubled in the post-crisis period, posing risks to some emerging markets. “Some of these risks have surfaced in form of weak bank and non-bank balance sheets, and some remain latent and can surface, especially when the global interest rate cycles turn decisively. The world will be looking to the IMF to suggest dependable solutions,” said Das.

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