Bank warns on global economy

The global economy faces the risk of a hard landing with US stock markets and the dollar dropping sharply in tandem, the Bank for International Settlements warned yesterday.

Recent volatility in currencies and equities, and the lack of liquidity in some financial markets, meant the market reaction to such a downturn posed a further risk, the bank said in its annual report.

Emphasising the uncertainties of the current global situation, the BIS, the international organisation of central banks, said the imbalance between rapid growth in the US and slower growth elsewhere would have to be corrected, and that large movements in exchange rates could follow.

"The rate of expansion of domestic demand in the US is unsustainable and potentially inflationary, and a similar if less extreme state of affairs prevails in some of the other English-speaking countries," the bank said.

Present stock market valuations were unlikely to be sustainable in the long term, it added.