annual report bis

Annual Economic Report 2018: Editorial

Starting this year, the traditional BIS Annual Report – comprising an analysis of the global economy and a presentation of the BIS’s activities – will be split into two separate publications. In addition, the economic part, renamed Annual Economic Report, has been restructured.

The first three chapters review global developments, prospects and risks, while two special chapters focus on topical issues, with analyses of macroprudential frameworks and cryptocurrencies. This editorial summarises the content and key messages.

The global economy: developments, prospects and risks

It is now 10 years since the Great Financial Crisis (GFC) engulfed the world. At the time, following an unparalleled build-up of leverage among households and financial institutions, the world’s financial system was on the brink of collapse. Thanks to central banks’ concerted efforts and their accommodative stance, a repeat of the Great Depression was avoided.

Since then, historically low, even negative, interest rates and unprecedentedly large central bank balance sheets have provided important support for the global economy and have contributed to the gradual convergence of inflation towards objectives. Still, central banks were largely left to bear the burden of the recovery, with other policies, not least supply side structural ones, failing to take the baton.

These actions by central banks helped lay the groundwork for the resumption of growth that we now see. But, in the process, they have been one factor behind the legacy of swollen private and public sector balance sheets and higher debts that shapes the road ahead. As the global economy reaches or even exceeds potential, it is time to take advantage of the favourable conditions to put in place a more balanced policy mix to promote a sustainable expansion.

However, the path ahead is a narrow one. The dividends of past policies were clearly in evidence in the year under review – a vintage one for the global economy (Graph E.1 and Chapter I). The expansion strengthened and broadened. Global growth rates were roughly on a par with precrisis long-term averages, and the expansion was highly synchronised across countries (Graph E.1, left-hand panel). Unemployment continued to decline, reaching multi-decade lows in a number of economies, including some of the largest (centre panel).

Overall, headline inflation rates moved closer to central bank objectives, although core inflation remained more subdued. In fact, the year capped a steady improvement in the global economy that has been evident for some time. As already noted two Annual Reports ago, the picture then was considerably better than the gloomy rhetoric indicated. And in last year’s Report we highlighted how talk of secular stagnation had given way to renewed optimism and a revival of animal spirits. For the next


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