Global Financial Risks on Rise, Need Potent Policy Mix: IMF
Washington: A “potent mix” of policies is needed to avoid global economic stagnation and tackle financial stability risks that have increased in advanced economies on account of greater uncertainty, falling commodity prices and concerns about China's growth, IMF said on Wednesday.
If not handled effectively, such risks — which also remain high in emerging markets — will lead to economic and financial stagnation eroding equivalent of one year of global growth over a five year period, it warned.
In its latest Global Financial Stability Report, IMF said that market turmoil reflected setbacks to growth, greater uncertainty and weaker confidence, and a more balanced, potent policy mix can expand global output by an additional 2%.
Earlier in the year, financial markets reacted negatively to the developments, it said. Global equities plummeted, volatility rose, talk of recession in advanced economies increased, and bank equity prices came under renewed pressure, IMF said, adding that it reflected increased concerns about the ability of policies to offset the impact of higher economic and political risks.
The situation in markets appears significantly improved since February, according to the IMF, following some better news on the economic front, as well as intensified policy actions by the European Central Bank, and a more cautious stance by the US Federal Reserve.
“A key question that this report addresses is whether the turmoil over the past months is now safely behind us, or is it a warning signal that more needs to be done?” said José Viñals, Financial Counsellor and head of the IMF's Monetary and Capital Markets Department.