If policymakers don’t handle market stability risks properly, the world may see a fresh financial crisis that may lead to global recession says the International Monetary Fund.
- Corporate defaults rise in emerging economies and there is a worldwide decline in appetite for riskier assets
- Shocks may originate in advanced or emerging markets and combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes
- Spending growth would slow sharply in emerging, and advanced economies leading to a shortfall in the output of 2.4 percent by 2017 compared with the baseline IMF forecasts.
- In emerging markets, we are in the late stages of a credit cycle. There is about $3tn of overborrowing or excess credit extended now
- In advanced economies, the greatest risks come from the Fed’s probable decision to raise interest rates, which the fund urged be done in a way that did not spook markets. Globally, the IMF highlighted the risk that markets would dry up if there were any shock to confidence.
- Fed should communicate its interest rate intentions carefully and the euro zone should throw light on non-performing loans in its banking sector.
Source: Financial Times