The world economy is likely to avoid a recession next year despite interest rates remaining high for at least another 12 to 18 months, according to the head of the Bank for International Settlements (BIS).
In an exclusive interview with RTHK on the sidelines of the HKMA-BIS High-Level Conference in Hong Kong, Agustin Carstens, general manager of the bank, noted that there could be “a marginal deceleration” and “a slowdown in the rhythm of economic activities and growth” next year, due to high interest rates as well as global uncertainties including the war in Ukraine and Gaza.
“But not to a point where we will have a deep recession or a recession at all. It’s very likely that we will see a ‘soft landing’,” Carstens said, adding that he believes world economic growth in 2024 won't be much lower than this year as major distortions in global value chains seen during the Covid era in Asia were mostly “addressed”, with countries adapting.
But he also cautioned that global central bankers are committed to a tightening monetary policy until “the job is done” in reining in inflation.
“Even though, to a large extent, we are at the point where most central banks are pretty close to where they would need to increase interest rates, it is still too premature to be absolutely sure that those measures will be effective in bringing down inflation to the target,” said Carstens.
Describing inflation as the “most aggressive tax” affecting the poor, he added it’s essential to reach the inflationary targets, and market expectations will adapt if “there’s good communication in monetary policy” from central bankers.
On the Chinese economy, the BIS chief said he's reassured by a commitment by the governor of the People's Bank of China to restructure the world’s second-largest economy to a “more balanced model”, having been dependent on housing and infrastructure in the past.
“At least there are perceptions that things will start moving in the right direction. And the projects are for slowly recovering economic growth. We could be in a position where there could be some improvement in the Chinese economy,” he said.
Separately, the veteran Mexican economist pointed out that despite an emerging trend of “de-dollarisation”, the dominance of the US dollar in global financial markets is unlikely to change any time soon.
He also pointed out that while calls to adopt regional currencies are on the rise, institutional challenges remain.
“The institutional changes took a lot of time. It took a lot of political will and very difficult political decisions. I don't see that going on in this environment,” Carstens said.