In China, the odds have improved in favour of a soft landing.   While economic growth has continued to ease in the face of weakening external demand, domestic demand has been holding up well.   Inflation appears to have peaked, providing monetary policy more latitude to support growth if necessary. 5. But the outcome for 2012 is by no means assured. Significant risks remain on the horizon:   First, resolution of the sovereign debt situation in the Eurozone is still a work-inprogress. With Europe sliding into recession, sovereign and banking vulnerabilities will remain a protracted concern.   Second, the sustainability of consumer spending in the US remains critically dependent on further improvements in the labour and housing markets – both of which are uncertain.   Third, a sharp spike in oil prices could potentially derail global economic growth. Oil prices, which have already started rising, are highly vulnerable to geopolitical developments in the Middle East. BIS central bankers’ speeches  1  6. Barring these potential shocks, the IMF projects the global economy to grow by 3.3% this year. The Eurozone will experience a mild recession. The US and Japan will have positive growth, but below trend. Developing Asia is expected to grow by 7.3%. Under these conditions, the growth forecast for the Singapore economy at 1–3% this year remains on track. 7. But it is not this year’s growth that policymakers or asset managers should be most concerned about. It is the medium-term growth and inflation outlook that matters.
The issuance of risk warnings, in the context of safeguarding financial stability – where the analysis is centred on the downside risks and thus on highly improbable events – differs substantially from other types of analysis focused on a central, most probable, baseline scenario (such as the one supporting monetary policy). The translation of systemic risk assessments into proposals for concrete policy actions – of a prudential or supervisory nature – is also, to a large extent, new to the central banking community. 3. What went wrong? Confronted with the question of whether central banks and international bodies with financial stability competencies saw the financial crisis coming, it would be fair to answer “Yes, to some extent”.