OECD Business and Finance Outlook 2018
The OECD Business and Finance Outlook is an annual publication that presents unique data and analysis on the trends, both positive and negative, that are shaping tomorrow’s world of business, finance and investment. Using analysis from a wide range of perspectives, this year’s edition addresses connectivity, both among institutions within the global financial system and among countries. Almost a decade on from the 2008 financial crisis, the Outlook examines new risks to financial stability that will put financial reforms to the test, focusing in particular on the normalisation of monetary policy, debt problems and off-balance sheet activity in China. With respect to connectivity among countries, the Outlook examines the new phase of globalisation centred on Asia/Eurasia, using China’s Belt and Road Initiative as a case study. It argues that this ambitious development plan has a number of economic issues to look out for, and that it would be best carried through with transparent “rules of the game” that will help ensure a level playing field for all.
The financial system outlook
Three major risks are set to shape the financial outlook:1. Monetary policy normalisation: with the unwinding of ultra-low interest rates and the large-scale holdings of sovereign and private sector securities on central bank balance sheets, the transition may be volatile.2. Financial sector vulnerabilities and the extent to which the recent finalisation of G20 reforms, including Basel III, has achieved the goal of a safe and sound financial system in the face of future stresses.3. High indebtedness and leverage, especially related to China’s bank, shadow bank and wealth management businesses, and how well the Chinese authorities will be able to manage related risk.All these risks have the potential to disrupt sustainable growth in the global economy. This chapter examines these three topics, concluding that financial system risk will be elevated in the period ahead.