Annual Economic Report 2018

Coming off a vintage year for global growth, prospects look favourable. But there are material risks ahead. These largely reflect the unbalanced nature of the recovery, with central banks bearing most of the burden.

The global expansion has strengthened and broadened, owing in no small part to the post-crisis measures taken by monetary and regulatory authorities. Yet growth is still too dependent on central banks' actions. 

The incipient monetary policy normalisation in the major economies raises tough challenges, exemplified by continued loose financial conditions. Normalising too slowly could give rise to overheating and financial stability risks, while moving too fast could trigger disruptive market reactions and harm the economic recovery.

The Basel III reforms have been completed, ending a key part of the post-crisis regulatory overhaul. The favourable economic outlook provides a window of opportunity for banks to finalise their post-crisis adjustment. Meanwhile, non-bank intermediaries have been gaining ground, creating new pressure points in financial markets.

Since the Great Financial Crisis, both advanced and emerging market economies have made substantial progress in implementing macroprudential frameworks. Such measures have strengthened the resilience of the financial system and moderated credit growth, but they have not always prevented the build-up of financial imbalances. 

Cryptocurrencies promise to replace trusted institutions with distributed ledger technology. Yet, looking beyond the hype, it is hard to identify a specific economic problem which they currently solve. Transactions are slow and costly, prone to congestion, and cannot scale with demand.