BIS Quarterly Review September 2024: Global Economic Trends and Central Bank Policies

BIS Quarterly Review September 2024: Navigating Global Economic Trends and Central Bank Policies

In the September 2024 edition of the BIS Quarterly Review, we delve into the intricacies of global economic trends and central bank policies. With the world economy continuing to face unprecedented challenges, it is crucial for policymakers and financial institutions to stay informed about the latest developments and trends that could impact their decision-making processes.

Global Economic Trends

The global economy has shown signs of recovery after a tumultuous few years. However, several key trends have emerged that could shape the economic landscape in the coming months and years. One such trend is the shift towards sustainable growth. As environmental, social, and governance (ESG) considerations gain increasing importance for investors, companies, and governments alike, the focus on sustainable growth is becoming a critical driver of economic development. Another trend worth mentioning is the resurgence of protectionist policies. With trade tensions continuing to simmer, the risk of further escalation remains a concern for many economies.

Central Bank Policies

Central banks have played a pivotal role in supporting the global economy through the pandemic and its aftermath. However, as economic conditions continue to evolve, central bank policies are also adapting to the new reality. One notable development is the shift towards more data-driven decision-making. Central banks are increasingly relying on real-time data to inform their policy decisions, which allows them to respond more effectively to changing economic conditions. Another trend is the gradual normalization of monetary policy. With many economies showing signs of recovery, central banks are beginning to wind down their emergency measures and return to more traditional policy settings.

I. Introduction

The Bank for International Settlements (BIS), based in Basel, Switzerland, is an

international organization

founded in 1930 to facilitate international monetary cooperation and provide services to central banks. Its

role and mission

include acting as a forum for central bankers to discuss economic and financial trends, providing statistical analysis and research on the global economy, and coordinating settlements between central banks in different currencies. The BIS

importance in global economic governance

is significant due to its unique position as a cooperative of central banks, allowing it to offer insights and perspectives that are not available from other organizations.

Significance of the September 2024 BIS Quarterly Review

The September 2024 BIS Quarterly Review is a highly-anticipated event in the economic calendar. Central banks around the world look forward to this review as it provides

trends and insights

that shape their monetary policy decisions. In the context of ongoing global economic uncertainties, this review is especially significant. Some

anticipated trends

that are likely to be discussed include the potential impact of ongoing trade tensions, the trajectory of inflation, and the implications of central bank policies.

I Central Bank Policies

Central banks have been implementing various monetary policies to address the challenges posed by the global economic landscape. These policies include

quantitative easing

, which involves buying financial assets to stimulate the economy, and

interest rate adjustments

, which impact borrowing costs. The September 2024 BIS Quarterly Review is expected to provide insights into the efficacy of these policies and potential future adjustments.

Global Economic Overview

Macroeconomic indicators and trends

1. Gross Domestic Product (GDP) growth rates:

The global economy has shown a moderate recovery from the pandemic-induced downturn, with most advanced economies projected to grow at around 4% in 202However, emerging markets and developing economies are expected to expand at a faster pace of over 6%.

2. Inflation rates and monetary policies:

Inflation has remained subdued in most countries, with an average of 2.5% for advanced economies and around 6% for emerging markets. Central banks have kept interest rates low to support economic recovery, but there are signs of policy normalization in some regions.

3. Trade dynamics and global value chains:

Global trade is rebounding, with a projected growth of around 8% in 202However, supply chain disruptions and geopolitical tensions continue to pose risks. The shift towards localization and reshoring of production is also gaining momentum.

Regional analysis

Advanced economies:

1. Economic performance and challenges:

Advanced economies have shown signs of recovery, but face challenges such as high levels of debt, aging populations, and technological disruptions. Central banks are gradually normalizing monetary policies, while fiscal measures remain key to support economic growth.

2. Central bank policies and interest rates:

The Federal Reserve has indicated that it will keep interest rates low until substantial progress is made towards full employment. The European Central Bank and the Bank of England have also maintained accommodative policies to support their economies.

Emerging markets and developing economies:

1. Economic growth and risks:

Emerging markets are expected to grow at a faster pace than advanced economies, but face risks such as debt sustainability, political instability, and external shocks. Inflation remains a concern in some countries, while others are grappling with the economic fallout from the pandemic.

2. Central bank policies and inflation targets:

Central banks in emerging markets are implementing various strategies to address inflation and support economic recovery. Some have raised interest rates to combat rising prices, while others have kept policies accommodative to stimulate growth.

External factors impacting the global economy:

• Geopolitical risks:

Geopolitical tensions, such as the ongoing trade war between the US and China, as well as regional conflicts in the Middle East and Africa, continue to pose risks to the global economy.

• Climate change:

Climate change is becoming an increasingly significant issue for the global economy, with potential impacts on agricultural productivity, energy supplies, and infrastructure.

• Technology:

Technological disruptions, such as automation and artificial intelligence, are transforming industries and labor markets. Policy responses will be crucial to ensure a smooth transition and minimize potential negative impacts on workers and communities.

I Central Bank Policies and Interest Rates

A. Overview of Major Central Banks and Their Mandates

Central banks play a crucial role in monetary policy, which is the process of managing the supply of money and interest rates to influence economic growth, inflation, and financial stability. Some of the world’s most influential central banks include:

• Federal Reserve (US)
• European Central Bank (ECB) (Eurozone)
• People’s Bank of China (PBOC) (China)
• Bank of England (BoE) (United Kingdom)

Each central bank is mandated to maintain price stability, promote financial stability, and support the economic goals of its respective country.

B. Monetary Policy Tools and Strategies

Forward Guidance

Central banks use various monetary policy tools and strategies, such as forward guidance. Forward guidance is the communication of central banks regarding their future policy intentions to influence current economic expectations. By signaling future interest rate moves, central banks can help guide market expectations and potentially stabilize financial markets.

Interest Rates and Quantitative Easing

The most commonly used tools are interest rates and quantitative easing. Central banks can raise or lower interest rates to influence borrowing costs, making it more or less expensive for businesses and consumers to borrow. Quantitative easing, on the other hand, is a large-scale monetary policy tool used when interest rates reach their lower bound. It involves central banks purchasing securities from financial institutions to inject money into the economy and stimulate demand.

Communication Strategies

Effective communication is a critical component of central banking. Central banks employ various strategies to ensure their messages are clear and understood by the public, markets, and other stakeholders.

C. Central Bank Decisions in the Context of the Global Economic Environment

Central bank decisions are made against the backdrop of the global economic environment, which includes factors such as inflation, growth, and financial stability. Central banks must strike a balance between maintaining price stability and promoting economic growth while ensuring financial stability.

Challenges and Risks to Global Economic Stability

Financial market risks

1. Stock market volatility: Unpredictable swings in equity markets can lead to significant losses for investors and disrupt economic activity.
2. Bond yields and credit spreads: Increases in bond yields or widening credit spreads can negatively impact borrowing costs, potentially slowing down economic growth.
3. Currency fluctuations: Volatile exchange rates can pose risks to international trade and investment, as well as create uncertainty for businesses operating across borders.

Geopolitical risks

1. Trade tensions and tariffs: Escalating trade disputes and protective measures can lead to retaliatory actions, disrupting global supply chains and increasing costs for businesses.
2. Political instability and conflicts: Ongoing political crises and armed conflicts can create uncertainty and disrupt economic activity in affected regions.
3. Cybersecurity threats: Increased reliance on digital technology for commerce and communication makes businesses more vulnerable to cyberattacks, potentially leading to significant financial losses and reputational damage.

Climate change and its economic implications

Physical risks:

1. Extreme weather events, such as hurricanes and droughts, can disrupt supply chains and damage infrastructure, causing significant economic losses.
2. Rising sea levels pose a threat to coastal communities, potentially leading to displacement of populations and substantial infrastructure investments.

Transition risks:

1. Carbon pricing: The implementation of carbon pricing mechanisms can increase production costs for businesses, potentially leading to job losses and economic disruption.
2. Regulatory changes: Stricter environmental regulations can impose significant costs on businesses, potentially hindering their competitiveness and growth.

Technological advancements and their impact on the economy

Automation and job displacement:

1. Advancements in automation and artificial intelligence can lead to significant job losses, particularly in industries that rely heavily on manual labor.
2. Adapting to new technologies and retraining workers can be costly and time-consuming, potentially creating short-term economic disruption.

Innovative business models and regulatory challenges:

1. Sharing economy platforms: The rise of sharing economy platforms, such as Airbnb and Uber, can disrupt traditional business models and create regulatory challenges.
2. Blockchain technology: The widespread adoption of blockchain technology could disrupt industries that rely on intermediaries, such as banking and finance.

Conclusion

Summary of key findings from the BIS Quarterly Review September 2024: The latest issue of the BIS Quarterly Review highlights several significant trends in the global economy.

Bond markets

Interest rates have continued to rise, with the 10-year US Treasury yield reaching new highs. This trend has been driven by expectations of higher inflation and tighter monetary policy, as central banks look to combat rising prices.

Currencies

The US dollar has remained strong, with the DXY index reaching new peaks. This is due to both monetary policy differentials and robust economic data in the United States.

Commodities

Commodity prices have continued to rise, driven by strong demand and supply disruptions.

Oil

The price of crude oil has reached new highs due to geopolitical tensions and production cuts.

Metals

Metals prices have also risen, with copper reaching a ten-year high.

Economic growth

Despite these challenges, the global economy is expected to continue growing at a robust pace.

Advanced economies

Advanced economies are expected to grow by around 3% in 2025, driven by strong consumer demand and business investment.

Emerging markets

Emerging markets are expected to grow at a faster pace, with China leading the way.

Implications for investors, policymakers, and businesses: These trends have important implications for investors, policymakers, and businesses.

Investors

Investors should be aware of the risks posed by rising interest rates, particularly for fixed income investments. They should also consider the potential opportunities presented by commodity prices and the strong US dollar.

Policymakers

Policymakers need to balance the need for tighter monetary policy with the potential risks of a slowing economy. They should also consider measures to address rising inflation and mitigate the impact on vulnerable populations.

Businesses

Businesses should be prepared for a challenging economic environment, with rising costs and potential disruptions to supply chains. They should also consider opportunities to adapt to the changing landscape, such as investing in automation and digital technologies.

Call to action for ongoing monitoring of global economic trends and central bank policies: The global economic environment is complex and constantly evolving. It is essential that investors, policymakers, and businesses stay informed about the latest trends and developments. This includes monitoring central bank policies, commodity prices, and economic data from around the world. By staying informed and adaptable, they can position themselves to capitalize on opportunities and mitigate risks in this challenging environment.