The Global Financial Stability Report provides an assessment of the global financial system and markets, and addresses emerging market financing in a global context. It focuses on current market conditions and highlights systemic issues that could pose a risk to financial stability and sustained market access by emerging market borrowers.
The Report draws out the financial ramifications of economic imbalances highlighted by the IMF’s World Economic Outlook.
And the latest Global Financial Stability Report shows that new risks are emerging. Political developments and uncertainty over trade tensions have also added to the downside risks.
“The global economic expansion remains strong supported by still easy monetary policy,” said said Tobias Adrian, Director of the IMF’s Monetary and Capital Markets Director. “Stepping back, the global financial system is certainly stronger than before the global financial crisis thanks to reform and recovery. However financial imbalances continue to build up, the new financial system remains untested. So, while there is reason for optimism, this is no time for complacency.”
The risk of downturn has increased since the release of the last GFSR report.
“Over the past six months the balance of risk has shifted to the downside. Global growth has plateaued, trade tensions have escalated and some emerging markets experienced capital outflows and asset price pressures,” he said. “To sum up, short term risks to financial stability have increased and medium-term risks remain elevated. There are concerns that investor confidence may be leading them to take undue risks.”
What to watch out for in the short term?
“Several potential developments could signal a sharp tightening in financial conditions: an intensification of concerns about emerging markets, a broader escalation of trade actions, an increase in policy uncertainty, or faster than expected monetary policy normalization,” he said. “This is a time for more proactive measures to safeguard financial stability and not to allow optimism to become complacency.”