On the other hand, the forecast moderation in global growth is taking it back only to about average pace. With the bulk of new demand for energy and resources coming from countries which are yet to show much sign of cyclical slowdown, and whose energy intensity of demand is continuing to increase secularly, any near-term softening in these prices might only be modest.
This undermines market discipline for governments and reduces their incentive to carry out necessary structural reforms. On the other hand, banks, which can obtain unlimited cash against sovereign collateral from the central bank, are protected from discipline from investors who provide funding. Large sovereign bond exposures might also harm the real economy. Rises in sovereign risk are transmitted into reduced bank lending.