New financial crisis threatens emerging economies and can strike growth, warns an influential group of central bankers.
Emerging markets such as China show the same signs of overheating in their economies like were seen in the United States and the United Kingdom before the financial crisis in 2007 and 2008, says the annual report of the Bank for International Settlements (BIS).
Claudio Borriello, director of the monetary and economic department of the BIS, said that a new recession could come in retaliation.
BIS, known as the central bank of central banks, warned that the global economy may fall into trouble. The bank predicted that central banks will be forced to raise interest rates after years of record lows to fight inflation, which will erase growth.
The group also warned of the threat of rising debt in countries like China and rising protectionism in the US under the direction of Donald Trump.
Corporate debt of China nearly doubled since 2007, currently reaches 166 percent of gross domestic product (GDP), while household debt has grown to 44% of GDP last year.
In May, credit rating agency Moody’s cut its rating on China for the first time since 1989 which is likely to increase the cost of borrowing for the Asian giant.
A drop in the credit rating reflects the fact that “the financial stability of China will worsen slightly over the coming years, the total volume of debt will continue to grow, while the potential for growth is slowing.”
Moody’s expects China’s economic growth to fall to around five percent annually for the next five years. Beijing foresees growth of about 6.5 percent this year.
According to BIS amount of debt is an early warning indicator for the banking system of the country and in China it is growing at a faster pace than in other Asian countries such as Thailand and Hong Kong.
At the same time the global economy is still recovering from the financial crisis and the collapse of the euro in 2010. Britain is suffering from a “lost decade” because productivity growth and wages froze.
