Bank for International Settlements Takes Aim at Protectionism
25 June 2017 - 11:59AM
Dow Jones News
By Brian Blackstone
ZURICH--The Bank for International Settlements warned Sunday
that rising protectionist sentiment and a retreat from global
cooperation on economic matters would threaten the world
economy.
"Rolling back globalization would strike a major blow against
the prospects for a sustained and robust expansion," said the BIS,
a consortium of central banks based in Basel, Switzerland, in its
annual report.
BIS chief economist Claudio Borio put it bluntly: "Rolling back
globalization would be as foolhardy as rolling back technological
change."
The stark warning comes amid signs that the decadeslong trend
toward greater trade and global cooperation on economic policy has
stalled and reversed in some cases.
The U.S. has in recent months pulled out of a proposed Pacific
trade agreement and said it would withdraw from the Paris climate
accord, and President Donald Trump wants to renegotiate the North
American Free Trade Agreement between the U.S., Canada and Mexico.
Last year, the U.K. voted in a referendum to exit from the European
Union.
This comes amid concerns that workers in major economies aren't
seeing the benefits of globalization at a time when wages are weak
and economic anxiety high.
Rising protectionist sentiments "have been part of a broader
social and political backlash against globalization," the BIS said.
"Investment would be the first casualty, given its tight link with
trade."
Since the last BIS report one year ago, some central banks have
slowly begun to scale back the massive stimulus they injected into
their economies in the aftermath of the global financial crisis. On
June 14, the Federal Reserve raised short-term interest rates to a
range of 1% to 1.25%, continuing a tightening cycle that started in
December 2015.
Earlier this year, the European Central Bank begun scaling back
the size of its quantitative-easing program to EUR60 billion ($67
billion) a month from EUR80 billion, though it continues to set
negative rates on bank deposits stored at the central bank.
The Bank of Japan has maintained its aggressive monetary easing,
including negative interest rates and asset purchases, and the Bank
of England last summer cut its benchmark interest rate to 0.25%
from 0.5%.
These ultraloose monetary policies at are somewhat at odds with
a global economy that continues to expand, albeit at a slower pace
than in previous recoveries. The threat of deflation has receded,
with inflation rates getting closer to the 2% level that many
central bankers deem optimal. Unemployment is low in many
economies.
The BIS, which has for years warned of the potentially dangerous
side effects of keeping interest rates too low for too long, also
took aim at the recent euphoria in financial markets. It noted that
while measures of market volatility are quite low, political
uncertainty is elevated.
It said that a "risky trinity" of high debt, low productivity
and limited room for policy makers to act--which the BIS warned
about one year ago--remains.
"The hard data have improved, but not as much as sentiment has,"
Mr. Borio said. "One may legitimately ask whether sentiment has
swung too far."
Write to Brian Blackstone at brian.blackstone@wsj.com
(END) Dow Jones Newswires
June 25, 2017 06:44 ET (10:44 GMT)
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