Uncertainty Increases Global Economic Vulnerability, Says Alexandre Tombini
Alexandre Tombini, head of the Bank for International Settlements (BIS) representation for the Americas, highlighted that increased uncertainty is exacerbating existing vulnerabilities in the global economy. He emphasized that recent financial system restructuring has led to greater interconnectedness among markets, causing rapid transmission of financial conditions between economies.
Impact on Latin American Countries
Tombini pointed out that high uncertainty levels are deteriorating economic conditions and affecting international trade, particularly in Latin American countries where trade has been a growth driver, technology transfer facilitator, and attractor of foreign investment.
Previously, emerging market financial institutions were the most exposed, but increased connectivity through financial vehicles has extended vulnerability to advanced markets.
US Trade Policies and Fiscal Management
Tombini noted that US trade policies and fiscal management are contributing to increased uncertainty, impacting corporate decisions and consumer behavior.
BIS Recommends Central Banks Focus on Inflation Control
According to the BIS Annual Report, central banks should prioritize fulfilling their commitment to curb inflation. The report’s experts explained that managing monetary policy has become complex, as it sometimes moves in the opposite direction.
Tombini stressed that central banks should remain focused on achieving inflation targets while preserving financial stability, even when tightening monetary policy to combat local inflation amidst loose financial conditions.
Policy Recommendations for Sustainable Economic Growth
The BIS report advised policymakers to promote sustainable economic growth while preserving economic and financial stability. Given that not all governments have fiscal space, alternative mechanisms should be sought to achieve consolidation that enables countries to face shocks while fostering a more growth-friendly environment.
Key Questions and Answers
- What is the main concern highlighted by Alexandre Tombini? Increased uncertainty in the global economy is exacerbating existing vulnerabilities, affecting international trade and Latin American countries’ growth.
- How have recent financial system changes impacted market interconnectedness? The restructuring has led to greater interconnectedness among markets, causing rapid transmission of financial conditions between economies.
- What factors contribute to the heightened uncertainty? US trade policies and fiscal management are increasing uncertainty, impacting corporate decisions and consumer behavior.
- What is the primary focus for central banks, according to the BIS? Central banks should prioritize fulfilling their commitment to curb inflation while preserving financial stability.
- What recommendations does the BIS provide for policymakers? Policymakers should promote sustainable economic growth while preserving economic and financial stability, seeking alternative mechanisms for consolidation when fiscal space is limited.
