The global economy is being hit by a slowdown in growth, large swings in exchange rates and tumbling commodity prices.
These three factors are often portrayed as separate “shocks” but should really be seen as manifestations of the same maturing financial and economic cycle.
The case for a single interconnected adjustment was made by Jaime Caruana, general manager of the Bank for International Settlements (BIS) on Friday (“Credit, commodities and currencies” BIS, Feb 5).
The BIS, nicknamed the central bankers’ central bank, has long worried about growing indebtedness in the global economy and the links between credit conditions, borrowing and growth.
But Caruana highlighted the rapid increase in indebtedness by private sector, non-financial borrowers in emerging markets.
Private non-financial sector debt in emerging market economies has increased from 75 percent to 125 percent of GDP since 2009.
Borrowing by non-financial companies in emerging markets now represents a higher proportion of GDP than in advanced economies.