Sunday, 16 December, 2018

FINANCIAL CRISIS WARNING: Global economy 'AT RISK from unsafe undercurrents'

He says efforts are afoot to protect the interests of lower income segments of society He says efforts are afoot to protect the interests of lower income segments of society
Rhonda Young | 12 October, 2018, 08:02

This would be in keeping with a fall in global GDP growth, which the International Monetary Fund has predicted to fall from 2& to 1.8% in 2019.

"Should market participants start pricing in the possibility of protracted trade tensions, financial conditions could tighten significantly, increasing the tail risk to global growth and financial stability", according to Global Financial Stability Report issued by the International Monetary Fund at its annual meetings in Bali.

She urged countries to "de-escalate" trade frictions and fix global trading rules, rather than abandon them. Mechanisms of multilateral global policy cooperation are under strain, notably in trade, and need strengthening'.

Tensions have soared in recent months with Donald Trump's administration rolling out billions of dollars in tariffs against China in a bid to tackle its trade deficit and rein in what Washington views as unacceptable trade practices by the Asian giant.

"Furthermore, financial stability requires new macroprudential tools for addressing vulnerabilities outside the banking sector", the report said.

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But it moved fast and intensified quickly, and emergency authorities lamented that many people ignored the warnings. From Florida to Alabama and Georgia to the Carolinas, over 900,000 homes and businesses have lost electricity.

The IMF further cautioned: "A number of vulnerabilities that have built up over the years could be exposed by a sudden, sharp tightening of financial conditions".

But the United States tax cuts and rising spending that have boosted growth, helping compensate for the impact of the growing trade conflict, could spark a sudden "inflation surprise", and in turn lead to faster-than-expected rise in USA interest rates, according to the fund.

The IMF said the balance of risks was now tilted to the downside, with a higher likelihood that financial conditions will tighten further as interest rates normalize, hurting emerging markets further at a time when US -led demand growth will start to slow as some tax cuts expire.

"Trade deficits don't (necessarily) mean cheating by the other side".

Obstfeld, who retires from the Fund later this year, said there were bright spots with some Latin American and African nations getting growth forecast upgrades.

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West, a long-time Trump supporter, also decried the allegedly widespread expectation that black people should be Democrats. On the topic of women, West also spoke about how Hillary Clinton's campaign slogan did not empower him during the meeting.

The normalization of monetary policy in the United States as well as a stronger dollar and escalation in trade tensions has already begun to affect emerging market economies, the Fund said.

That would include boosting foreign currency reserves that could be used in a crisis, as well as working with local bond markets to build a local investor base, rather than relying on financing from overseas.

She said a safer global economy also means tackling the issue of sustainability, including the existential threat of climate change.

That could result in higher-than-expected interest rates from the US Federal Reserve and stock market uncertainty.

Conditions in Europe and other major advanced economies have also remained "relatively easy", although investors have pushed back their expectations for the European Central Bank to lift interest rates, the report said.

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He described trade as "critical" to the lender's agenda and acknowledged that it has enabled millions of people to pave their way out of extreme poverty.

In China, corporate debt has risen to levels "well above global historical benchmarks", while the rapid pace of household debt is concerning, according to the fund.

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