IMF flags financial stability

Washington: The International Monetary Fund (IMF) on Wednesday warned that global growth may be significantly harmed with further escalation of trade tension, which is a result of the uneven global economic recovery that has fuelled inward-looking policies and contributed to increased policy uncertainty.

A decade since the economic crisis, while there has been an undeniable progress towards a safer global financial system, clouds appear on the horizon, the IMF said in its latest fiscal stability report.

“The global economic recovery has been uneven and inequality has risen, fuelling inward-looking policies and contributing to increased policy uncertainty. Trade tensions have emerged, and a further escalation may damage market sentiment and significantly harm global growth,” it said. “Support for multilateralism has been waning, a dangerous undercurrent that may undermine confidence in policymakers’ ability to respond to future crises,” the report said.

Nonetheless, despite trade tensions and continued monetary policy normalisation in a few advanced economies, global financial markets have remained buoyant and appeared complacent about the risk of a sudden, sharp tightening in financial conditions, the world body said.

The IMF report finds that short-term risks to the financial system have increased somewhat over the past six months. “Trade tensions have escalated, policy uncertainties have increased in a number of countries, and some emerging market economies are facing financial-market pressures,” Tobias Adrian, financial counsellor and director of the monetary and capital markets department of the IMF, said.

Looking further ahead, risks remain elevated, he said. To be sure, the financial system is stronger today than before the global financial crisis, thanks to a decade of reform and recovery. “However, vulnerabilities continue to build, and the new financial system remains untested. Additional steps are needed to improve its resilience,” Mr Adrian said. If pressures on emerging market economies were to broaden and intensify, financial stability risks would increase significantly, he said.