Serkan Arslanalp, Reinout De Bock, Matthew Jones, 04 June 2015
Major advanced economies have made mixed progress in repairing the private sector’s balance sheets. This column explores private sector deleveraging trends and calls for a set of policies that will return debt to safer levels. Monetary policies should support private sector deleveraging and policymakers should not ignore the positive impact of debt restructuring and write-offs on non-performing loans.
Credit ratings agencies have enormous power over countries in dire straits. But whether prevailing global economic conditions affect their assessments is rarely asked. This column suggests that credit ratings agencies overreact in downgrading countries credit ratings during times of economic crisis and instability, and underreact when upgrading during calmer times. This is bad news for policymakers who think that strong economic performance will get them back the credit rating they once took for granted.
Since the Global Crisis, international banks have reduced cross-border lending but continued to lend through their branches and affiliates overseas. This column argues that the observed shift was to a significant extent driven by regulatory changes. It should improve financial stability in host countries of foreign banks.
Emerging markets are not the hot investment prospect they used to be. This column estimates that weaker private investment in these nations is a slowdown after a period of boom rather than an outright slump. Prospects for a recovery of business investment, however, are not promising. Commodity prices are expected to remain weak and external financial conditions are set to become tighter.