The International Monetary Fund (IMF) warned today about the growing risks to long-term financial stability, even though current short-term risks seem to be under control. In its Global Financial Stability Report, the IMF noted that favorable financial conditions are currently facilitating the accumulation of vulnerabilities, such as high asset valuations and an increase in private and government debt globally. The organization highlights that in the past, accumulations of vulnerabilities occurred prior to the 2008 financial crisis.
The IMF emphasizes the importance of strengthening the macroprudential policy framework to avoid excessive risks in the non-financial sector. It also recommends conducting stress tests that incorporate scenarios considering geopolitical events or trade restrictions. While achieving a soft economic slowdown is crucial, the IMF urges intensifying preventive measures to avoid future fragilities.
Regarding sovereign debt, the IMF highlights that high levels of debt and its rapid growth continue to pose a challenge globally. Despite the resilience of emerging markets, the IMF warns that uncertainty surrounding trade and geopolitical policies remains high, which could put pressure on these markets despite the easing of monetary policy in advanced economies.
The report underscores the importance of clear communication from central banks to reduce uncertainty and avoid excessive reactions to monetary policy. The increasing vulnerabilities identified could amplify the negative impacts of potential unexpected 'shocks' in the financial markets, particularly due to the current economic and geopolitical uncertainty.
The IMF warns that the gap between this uncertainty and market volatility is a cause for concern, as it raises the likelihood of sharp changes in volatility and asset valuations. To contain these risks, it is considered essential for regulators to be prepared to intervene quickly and prevent contagion in financial markets in the event of adverse situations.
