IMF: Lower for Longer – Rising Vulnerabilities May Put Growth at Risk

The pace of global economic activity remains weak, and financial markets expect rates to stay lower for longer than anticipated in early 2019. Financial conditions have eased even more, helping contain downside risks and support the global economy in the near term. But loose financial conditions come at a cost: they encourage investors to take more chances in a quest for higher returns, so risks to financial stability and growth remain high in the medium term.

The latest edition of our Global Financial Stability Report highlights elevated vulnerabilities in the corporate and non-bank financial sectors in several large economies. These and other weak spots could amplify the impact of a shock, such as an intensification of trade tensions or a no-deal Brexit, posing a threat to economic growth.

This situation poses a dilemma for policymakers. On the one hand, they may want to keep financial conditions easy to counter a deterioration in the economic outlook. On the other hand, they must guard against a further buildup of vulnerabilities. The GFSR points to some policy recommendations, including deploying and developing, as needed, new macroprudential tools for non-bank financial firms.

Συνέχεια ανάγνωσης εδώ: blogs.imf.org