Risks on the rise

RISKS to the global financial system have risen over the past six months and could increase sharply if pressures in emerging markets escalate or global trade relations deteriorate further, the International Monetary Fund says.

The IMF, whose meetings with the World Bank get under way in Bali this week, also noted that while financial stability had been shored up by regulators in the decade since the 2008 global financial crisis, easy financial conditions were contributing to a buildup of potential problems related to high debt levels and “stretched” asset valuations.

But new bank resolution regimes for avoiding future bailouts were largely untested, the fund said in its biannual global financial stability update.

“Near-term risks to global financial stability have increased somewhat,” it said.

“Overall, market participants appear complacent about the risk of a sharp tightening in financial conditions.”

The fund noted that economic growth appeared to have peaked in some major economies, while the gap between advanced countries and emerging markets was widening.

On Tuesday the IMF cut its global growth forecasts due to an escalating US-China trade war and growing financial strains on emerging markets

The US continues to grow strongly and the Federal Reserve raised interest rates for the seventh time in the past eight quarters at its latest policy meeting in September.

US stock markets are also at record highs, contrasting with a slowing in the euro area and Japan.

China’s economy is also showing signs of moderating and that could be exacerbated by its trade disputes with the US, which has imposed tariffs on $352 billion worth of imports from Beijing and is threatening duties on $376 billion more.

The normalisation of monetary policy in the US as well as a stronger dollar and escalating trade tensions had already begun to affect emerging market economies, the fund said.