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Global economy performs well, but risks remain, says BIS

The performance of the global economy over the last few years has been extraordinary, and high level growth is expected to continue in 2007, the Bank for International Settlements (BIS) said on Sunday. 

In its annual report, the Basel-based Bank for International Settlements, known as the central bank of central bankers, said the real growth of global economy has been maintained around levels that are among the highest recorded in the postwar period, and many of the world's poorest countries have shared in this growing prosperity. It noted that underlying inflation levels have generally remained subdued, despite significant upward shocks to most commodity prices. Record global trade imbalances have been easily financed and exchange rates have been generally stable. “The combination of developments is so extraordinary that it must raise questions about the source and, closely related, the sustainability of all this good fortune,” the report said.

At BIS's annual general meeting on Thursday, BIS General Manager Malcolm Knight highlighted the uncertainties currently facing markets and policymakers. They include the possible resurgence of global inflation, the evolution of current account imbalances, and potential vulnerabilities in financial markets and financial institutions. Knight noted that behind each set of concerns lurks the common factor of highly accommodative financial conditions. A further tightening of monetary policy might then be needed, as well as action to reduce still high government deficits and debt in many countries. Countries that, in principle, have floating exchange rate regimes should allow their currencies to adjust more freely, he said. (