The International Monetary Fund (IMF) warned on Tuesday that risks to global financial stability had increased, increasing the risk of disorderly repricing in the market, as it showed emerging markets and the housing market were particularly vulnerable.
The IMF says 'Storms' are hitting the global economy, including persistent inflation, a slowdown in China, and continued pressure from Russia's invasion of Ukraine that have pushed the risk of a severe downturn to levels not seen since the start of the Covid-19 pandemic.
In its latest Global Financial Stability Report, the IMF warned that risks to global financial stability have increased since the April 2022 edition, causing the balance of risks to rotate 180 degrees.
It was stated by the IMF that the global situation is very fragile and is being hit by ``storms''. Lingering market weakness, tightening liquidity, persistently high inflation and continued efforts by central banks around the world to raise rates to combat it have combined to create a volatile and risky environment, the report said.
In a different statement, ”investors have aggressively pulled back from risk-taking recently and many are reassessing their economic and policy outlook. Markets have been in turmoil with the S&P 500 down 24% so far this year while global bonds entered a bear market and the dollar is at its highest level in two decades which could end up causing trouble for the rest of the world.
The IMF warned that any sharp downturn would be felt sharply by emerging market economies, where they grapple with "multiple risks" such as high borrowing costs, high inflation and volatile commodity markets. The IMF also warned that credit spreads have widened significantly in the corporate sector, and that higher rates could adversely affect the housing market.
In China, the downturn in the property sector is also seen to worsen and the failure of property developers could spill over into the banking sector, the IMF said.
The IMF said the central bank must act "resolutely" to control inflation. Policymakers also need to address persistent financial weakness to ensure adequate market liquidity and minimize the risk of severe and disorderly selling.
