Ten years after the collapse of Lehman brothers sent markets in to crisis, banks and governments have largely restored confidence in the stability of the world’s systems, but new risks are emerging the IMF says in the latest Global Financial Stability Report.
“The global economic expansion remains strong supported by still easy monetary policy,” said said Tobias Adrian, Director of the IMF’s Monetary and Capital Markets Director.
“Stepping back, the global financial system is certainly stronger than before the global financial crisis thanks to reform and recovery,” he said. “However financial imbalances continue to build up, the new financial system remains untested. So, while there is reason for optimism, this is no time for complacency.”
The risk of downturn has increased since the release of the last GFSR report.
“Over the past six months the balance of risk has shifted to the downside. Global growth has plateaued, trade tensions have escalated and some emerging markets experienced capital outflows and asset price pressures,” Tobias said.
Political developments and uncertainty over trade tensions have also added to the downside risks.
“To sum up, short term risks to financial stability have increased and medium-term risks remain elevated,” said Adrian. “There are concerns that investor confidence may be leading them to take undue risks.”
Adrian laid out some of the risks to watch out for in the short term.
“Several potential developments could signal a sharp tightening in financial conditions: An intensification of concerns about emerging markets, a broader escalation of trade actions, an increase in policy uncertainty, or faster than expected monetary policy normalization,” he said.
“This is a time for more proactive measures to safeguard financial stability and not to allow optimism to become complacency,” Tobias urged.