BIS: Monetary policy cannot be engine of economic growth

In its Annual Economic Report, the Bank for International Settlements (BIS) calls for structural reforms, fiscal policy and macroprudential measures to play a greater role in ensuring sustainable growth. The BIS – also known as the central bank of central banks – writes that “monetary policy cannot be the engine of growth”. It believes that other policy areas also have to contribute to ensuring global economic momentum is sustainable in the long term.

Structural reforms for sustainable growth

According to BIS experts, last year’s global economic growth was weaker than initially expected. Overall, the global economy is estimated to have expanded by 3.7% over the past year. However, international trade and investment, in particular, are reported to have contracted. According to the report, the resilience of the services sector and strong labour markets can help drive growth in the short term. With regard to the global economy, the BIS writes that “employment growth and solid wage increases have underpinned consumption”. In order to promote sustainable growth, the BIS calls for efforts to implement structural reforms to be intensified. The BIS believes strengthening public investment and introducing tax reforms would also help.

“Trade wars have no winners”

The BIS sees one of the greatest risks to global economic growth in the ongoing trade tensions and the associated political uncertainty. General Manager of the BIS, Agustín Carstens, warned that “trade wars have no winners”.  In his view, trade tensions were clouding not only future demand and investment prospects, but also calling into question the viability of existing supply chains and even the very future of the global trading system.

Country-specific developments were also giving rise to concern among BIS economists. For instance, some countries are experiencing rising debt, a number of banks – especially in the euro area – are confronted with low profitability, and several emerging market economies, such as China, are facing a deleveraging challenge. On that topic, the report states that the measures needed to restrict bank lending in these countries are depressing economic activity.

Big techs could turn into digital monopolies

In its report, the BIS also looks at what are known as big techs, i.e. large technology companies such as Amazon, Facebook and Alipay. On the one hand, the experts say that such companies promise efficiency gains and may be able to promote financial inclusion. On the other hand, big techs entering the financial services market presents new and complex trade-offs between financial stability, competition and data protection. “Given their scale and technology, big techs have the ability to collect massive amounts of data at near zero cost.” The experts at the BIS warn of “digital monopolies” or “data-opolies” emerging in this context.