Risk of Global Financial Crash Has Increased
The risk of a global financial crash has increased because a slowdown in China and decline in world trade are undermining the stability of highly indebted emerging economies, according to the International Monetary Fund (IMF).
The Washington-based lender of last resort said the scale of borrowing by emerging market countries, whose debts are vulnerable to rising interest rates in the US, mean policymakers need to act quickly to shore up the financial system.
José Viñals, the IMF’s financial counselor, said the threat of instability and recession hanging over economies including China, Brazil, Turkey and Malaysia was one of a “triad of risks” that could knock 3% off global GDP. The second, he said, was the legacy of debt and disharmony in Europe, while the third is centered on battered global markets that are more likely to transmit shocks rather than cushion the blow.
At the very least, central banks would need to remain vigilant and be prepared to increase their stimulus programs should difficulties in emerging market countries spill over into the financial system.
Addressing the prospect of an interest rate rise in the US, Viñals said there was little reason to tighten monetary policy before Christmas while inflationary pressures and wage rises remain low. “The risks of a premature tightening are greater than those of waiting two or three more months,” he said. (Read more from “Risk of Global Financial Crash Has Increased” HERE)
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