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US-dollar denominated debt and export revenues Figure 1.28. Looking ahead, the expected reduction in the US Federal Reserves total assets and further increases in policy
interest rates may result in substantial volatility in currency and bond markets. Figure 1.27. Chinas linkages with the global economy have increased
1. Share of loans to China in total foreign loans of all BIS reporting banks, on an ultimate risk basis. 2. Dynamic Asia Economies include Chinese Taipei, Hong Kong - China, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
3. Brazil, India, Indonesia, Russia and South Africa. 4. Oil producers include Algeria, Angola, Azerbaijan, Bahrain, Brunei, Chad, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kazakhstan,
Kuwait, Libya, Nigeria, Oman, Qatar, Republic of Congo, Saudi Arabia, Sudan, Timor-Leste, Trinidad and Tobago, Turkmenistan, the United Arab Emirates, Venezuela and Yemen.
Source: OECD Economic Outlook 101 database; Bank for International Settlements; US Department of Treasury International Capital System; IMF Direction of Trade Statistics; International Energy Agency 2017; World Bank Group 2017; and OECD calculations.
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2006 2008
2010 2012
2014 2016
2018 5
10 15
20 Real GDP
Real goods and services trade
A. Share of China in GDP and trade
2010 PPP, USD
5 10
15 20
Foreign banks’ exposures¹
... to NFCs¹
... to banking sector¹
Holdings of US treasuries 2005
Latest
of total
B. China’s financial linkages
DAE² JPN
BRIIS³ DEU
KOR USA
OIL AUS
5 10
15 20
4
C. Share of Chinese merchandise imports
2016
10 20
30 40
50 60
Natural gas Crude oil
Natural rubber Lead
Nickel Zinc
Tin Iron ore
Copper Coal
Aluminium
D. China’s share in commodities demand
2016 or latest available, in
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Policies for sustained and inclusive growth
A comprehensive and collective policy response is needed to durably exit the global low- growth trap, manage risks and help ensure that the benefits of technological progress and
globalisation are more broadly shared. Rebalancing of the policy mix towards fiscal policy initiatives and structural reform packages would reduce the burden on monetary policy,
especially in advanced economies, and help to catalyse the improvements in business investment and productivity that are needed to support stronger real wage and potential
output growth. In turn, stronger demand growth would also help ease the pressures arising from financial vulnerabilities. Collective fiscal and structural efforts would have a greater
impact than individual efforts, and would be aided by clear and longer-term commitments to policies and frameworks, including through international coordination.
Monetary policy stimulus should be reduced gradually
The monetary policy stance has continued to diverge among the main OECD areas.
11
Further divergence is likely over the coming 18 months, involving both policy rates and the Figure 1.28. US-dollar denominated debt and export revenue
As a percentage of GDP
Note: 2016Q4 estimate of the US dollar USD denominated debt of non-bank borrowers. This includes international bonds issued by non- banks by nationality i.e. including bonds issued by offshore affiliates of domestic non-banks; foreign bank cross-border USD claims
loans and debt securities on domestic non-banks; local USD claims of domestic banks on domestic non-banks; and cross-border USD claims of domestic banks banks on foreign non-banks. The latter is a proxy for USD loans to non-bank offshore affiliates, and may thus
overstate the ultimate USD debt of domestic non-banks. The value of local and cross-border non-bank USD debt is approximated using bank claims on non-banks as a share of total bank claims and total bank USD claims on banks and non-banks. In China, the USD
component of local bank cross-border claims on non-banks is assumed to be 50 of the total cross-border USD claims of local banks. Estimates for Indonesia, India, and Turkey do not include domestic bank USD claims on local and cross-border non-banks. US-dollar
denominated export revenue is given by merchandise exports invoiced in US dollars in 2016. Estimates of the USD share of exports are based on Gopinath 2016 for all countries, except Chile based on Cravino, 2014 and China and Russia national sources.
Source: OECD Economic Outlook 101 database; Bank for International Settlements locational banking statistics; Bank for International Settlements debt securities statistics; IMF International Financial Statistics; The Central Bank of the Russian Federation; and OECD
calculations.
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Brazil China
India Mexico
Turkey Chile
Indonesia Korea
Russia South Africa
5 10
15 20
25 30
35 40
5 10
15 20
25 30
35 40
USD denominated export revenue USD denominated debt
11. Since November 2016, the US Federal Reserve has increased policy interest rates on two occasions by a cumulative 50 basis points, while the policy stance has been broadly unchanged in the euro
area and Japan. The European Central Bank has reduced monthly asset purchases from 80 to 60 billion euros from April but is expected to buy assets for longer, at least until end-2017. It has
also adjusted the modalities of asset purchases to ensure their smooth implementation. The Bank of Japan has continued the yield curve control framework, which targets the 10-year government
bond yield rather than the amount of bond purchases.
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size of the balance sheet of central banks Figure 1.29, with policy settings depending on fiscal, financial and economic developments.
●
A further gradual reduction of monetary stimulus is desirable in the United States. With inflation projected to be a little above the inflation target through 2018 and shrinking
spare capacity in the labour market, the policy rate should be raised broadly in line with median expectations of FOMC members, reaching around 2.25 by the end of the
projection horizon. With respect to its security holdings, the Federal Reserve will need to provide investors with more information on how it intends to attain the goals set out in
its September 2014 policy normalisation principle, including plans to reduce security holdings to a level of “no more than necessary to implement monetary policy efficiently
and effectively”.
12 ●
In the euro area, with core inflation projected to slowly approach the inflation target by end-2018, the European Central Bank should gradually taper asset purchases in 2018.
Inflation developments also warrant a gradual phasing out of the negative interest rate policy; in particular, the negative deposit rate could be raised towards the end of 2018 to
make the policy rate corridor symmetric again.
12. The Federal Reserve could opt to maintain a sizeable balance sheet and control market interest rates via interest rates paid on excess reserves i.e. so-called floor system, see Inaba
et al. 2015.
Figure 1.29. Interest rates are expected to diverge among the main OECD areas
Source: OECD Economic Outlook 101 database; Bloomberg; and OECD calculations. 1 2
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2006 2008
2010 2012
2014 2016
2018 -2
2 4
6 United States
Euro area Japan
A. OECD projections of short-term interest rates
