IMF: Weak Spots in Global Financial System Could Amplify Shocks

In the United States, the ratio of corporate debt to GDP is at record-high levels. In several European countries, banks are overloaded with government bonds. In China, bank profitability is declining, and capital levels remain low at small and medium-size lenders.

Vulnerabilities like these are on the rise across advanced and emerging market economies, according to the IMF’s latest Global Financial Stability Report. They aren’t all setting off alarm bells just yet. But if they continue to build, especially with still-easy financial conditions, they could amplify shocks to the global economy, raising the odds of a severe economic downturn a few years down the road.

This poses a dilemma for policymakers seeking to counter a slowing global economy, as discussed in the World Economic Outlook. By taking a patient approach to monetary policy, central banks can accommodate growing downside risks to the economy. But if financial conditions remain easy for too long, vulnerabilities will continue to build, and the odds of a sharp drop in economic growth at some later point will be higher.

Weak Spots in Global Financial System Could Amplify Shocks

Πηγή: blogs.imf.org