For this to happen, the current trends need to be supported by a combination of more restrictive fiscal policy in the United States, greater exchange rate flexibility in the Asian economies, and structural reform in Europe. 2. International financial conditions On the international financial markets real interest rates and the volatility of financial assets are low.
Relaxed and stable financial conditions foster economic growth, which in turn is conducive to such conditions. At the same time they may reflect a reduced perception of risk by market participants and encourage them to build up illiquid and highly risky positions.