World heading for financial crash as China on verge of ‘boom gone wrong’
A GLOBAL financial crash is brewing as China and other emerging markets are binging on debt, the world’s central bank watchdog has warned.
By LANA CLEMENTS
Express.co.uk
Mon, Jun 26, 2017
A number of economies in developing countries look worryingly similar to the US and UK before the devastating crash hit in 2007, with soaring house prices, slow economic growth, and a large credit bubble.
The stark warning from the Bank for International Settlements (BIS) said low interest rates are helping to keep debt at manageable levels.
But the end of the current cycle of global growth now risks ending in a crash with a vengeance, warned Claudio Borio, head of the monetary and economic department at the BIS.
Monetary policy makers, such as the Bank of England, have now been urged to start raising interest rates and withdraw Quantitative Easing measures, to help normalise economies.
It also means policymakers would have room to move in the event of another crisis and the end of current growth.
Mr Borio said: “That end may come to resemble more closely a financial boom gone wrong, just as the latest recession showed, with a vengeance.”
He added: “Leading indicators of financial distress point to financial booms that in a number of economies look qualitatively similar to those that preceded the Great Financial Crisis.
“The countries involved are not those that were at the centre of the crisis: there, the financial cycle expansion is younger. Rather, the countries affected comprise a number of emerging market economies (EMEs), including some of the largest, and some advanced economies largely spared by the GFC.
“In this group, protracted strong credit expansion, often alongside rising property prices, signals the build-up of risks.
“That said, so far unusually low interest rates have generally kept debt service ratios below critical thresholds.
“The strong post-crisis growth of foreign currency debt adds to vulnerabilities in some countries.”
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