"Gathering storm" threatens the world economy

Batten down the hatches...

"Gathering storm" threatens the world economy

Jeff Chiu / AP

The Bank of International Settlements (BIS) has warned that a financial "storm" is gathering as central banks run out of options and their influence dwindles.

The latest report from the institution which is know was the central bank of central banks says that there has been an "uneasy calm" but trouble is on the horizon are markets grow volatile and the world faces a "gathering storm."

"The tension between the markets’ tranquillity and the underlying economic vulnerabilities had to be resolved at some point. In the recent quarter, we may have been witnessing the beginning of its resolution," BIS chief Claudio Borio said.

"We may not be seeing isolated bolts from the blue, but [we see] the signs of a gathering storm that has been building for a long time," he added.

He says that there is particular concern about the health of central banks and their waning powers as they run out of policy options.

"Underlying some of the turbulence was market participants’ growing concern over the dwindling options for policy support in the face of the weakening growth outlook... With fiscal space tight and structural policies largely dormant, central bank measures were seen to be approaching their limits," the report says.

Mr Borio added that debt has been growing as economic activity has slowed and that this dynamic is unsustainable:

"Against the backdrop of a long-term, crisis-exacerbated decline in productivity growth, the stock of global debt has continued to rise and the room for policy manoeuvre has continued to narrow," he said.