The Bank for International Settlements warned yesterday that America’s economy will avoid a hard landing only if growth rates improve elsewhere in the world.

The BIS – which functions as the central bank for the world’s central banks – pinpointed serious US economic imbalances, especially the nation’s massive current account deficit, low savings ratio and huge private debt. These need to be redressed if the US is to return to economic stability, said the bank in its annual report.

BIS general manager Andrew Crockett predicted a lengthy U-shaped downturn as opposed to the more widely expected sharp V-shape recovery. A gradual depreciation of the dollar alongside accelerated economic growth in the rest of the world would enable the US to make a smoother, though more prolonged, transition to stability.

"But if these things do not happen, the risk remains of more disruption, and that is something we have always warned about," said Crockett.

The bank urged the European Central Bank to loosen monetary policy if growth prospects weakened, and rapped the Japanese government for its inertia in restructuring that country’s corporations and banks.

Opined BIS: “The major impediment to fundamental change is still the special-interest political system in Japan and the culture of mutual obligation. While there is now more talk of action under a new prime minister, this will only materialise once a political consensus has emerged for real change.”

Despite its cautionary timbre, the BIS report ended on an upbeat note: “In the course of 2000, the bursting of the equity market bubble, the repricing of credit risk and the uncertain outlook for supply conditions in major government bond markets gave rise to concerns. In the event, markets appear to have responded relatively smoothly."

News source: Financial Times