The Bank for International Settlements (BIS, for its acronym in English) already warned in June 2020. “A year can be an eternity,” said the economic report published by the body that coordinates the world’s major central banks. Then, it warned that “the abrupt stop” resulting from the pandemic was going to have immense effects on the economy and that it was called to be one of the defining moments of this 21st century. A year later, the Basel-based body shows a much more optimistic tone. The rebound in activity has been faster than expected, it is true. But that does not mean that the outlook for the exit from the pandemic – a concept for which the BIS has coined a new concept: pandexit– is clear of hazards. Quite the contrary.
International institutions today have a much clearer idea of where the future is going to go than a year ago, when the brutal blow of the coronavirus suddenly turned off the high beams of the international economy drivers. The BIS, a body that acts as a kind of central bank for central banks, now predicts a central scenario of relative comfort: a soft recovery in which the pandemic is gradually taking hold. In this case, consumption is the lever to get out of the crisis, and corporate losses remain at limited levels.
Inflation, the great monster that some economists see approaching and others downplay, is approaching its target levels. “And any increase from there will be temporary,” say the BIS technicians. In this scenario, moreover, financial conditions are not significantly restricted. As a great black point, inequality between countries remains when it comes to getting out of the hole. “The world entered this crisis suddenly and suddenly, but countries will live their pandexit at their own speed and way ”, they point out.
This is the main stage, but not the only one. And the other two are much less promising, either due to overly robust growth causing unwanted effects on financial stability, or due to a pandemic out of control due to the new variants that derail the prospects for growth and return. to normal. In the first case, very strong growth could trigger inflation outlooks, which in turn would force central banks to tighten financial conditions. This could happen if the stimulus plans deployed throughout the Western world – and, most especially, in the United States of a Joe Biden with an open portfolio to irrigate the economy of billions – had a greater than expected impact on demand. , causing an inflationary spiral of unforeseen consequences. But the technicians of the Bank for International Settlements see this option unlikely. “Long-term trends continue to keep inflation low,” they explain.
More likely is the third scenario, in which the recovery stalls as a result of a pandemic that is even more difficult to control than it has already shown. “New waves of even more virulent covid-19 strains could become immune to vaccines, which would lead to new restrictive measures,” they advance in the BIS. The effects would not be felt in the economy if, in addition, the fiscal stimuli approved by the governments do not have the desired impact to stimulate demand and the “dreaded wave of corporate insolvencies” materializes. This is, according to the body headed by the Mexican Agustín Carstens, another of the great questions that still remain a question mark. And especially worrying if it touches the nerve of large financial institutions.
“We emerged from the pandemic with more public debt, lower interest rates and larger central bank balance sheets. Normalizing monetary and fiscal policy in the long term will provide the necessary safety margin to face unforeseen events. And to guarantee a lasting recovery it will be necessary to address the most enduring consequences of the pandemic, ”says Carstens, director general of the organization, in a note attached to the report.
As it ventures into the future, the BIS also looks back. And it comes to the conclusion that, if we are now thinking about ending the crisis, it is thanks to the “rapid and forceful” measures adopted by central banks and governments, which have limited the economic damage of the pandemic. But the challenges are still there. The agency is particularly concerned about the effects that a faster exit from the crisis in rich countries could have on emerging economies, leading to interest rate hikes and tightening monetary conditions.