U.S., WASHINGTON, April 16. Financial markets are facing three main short-term risks, said Tobias Adrian, Financial Counselor and Director, Monetary and Capital Markets Department, IMF during a briefing on the Global Financial Stability Report held as part of the IMF Spring Meetings in Washington, Trend reports.
“What we've seen is really a tremendous amount of optimism in financial markets. Inflation is expected to return to target in countries around the world while economic activity slows. We have seen that credit spreads have compressed even for riskier borrowers. So many countries that have been shut out of global capital markets for the past year or year and a half have returned at market since the beginning of the year. Now, turning to the rest, there are some short-term and medium-term risks,” said Adrian.
He pointed out that the shorter-term risks are primarily about inflation.
“We do forecast inflation to come down. But there's certainly some differentiation across countries on how quickly inflation is coming down, and what central banks have to do going forward in order to get inflation back to target. So this is one risk. The second shorter term risk is that we do see fairly compressed volatility, a fairly high correlation across asset markets, while fundamental uncertainty continues to remain somewhat elevated. There are so many geopolitical tensions around the world. And there are other economic headwinds that could lead to a reassessment of the economic situation going forward,” said Adrian.
He went on to add that the third issue is about this narrowing of credit spreads and underlying credit quality that is deteriorating in some corners.
“So broadly, the global economy is very strong. It has surprised to the upside in many countries, particularly in the US, but also just yesterday, China announced stronger-than-expected GDP numbers. So we see a lot of strength, but we do see certain corners where default rates are rising, that is some weakness,” he added.
The Spring Meetings of the International Monetary Fund and the World Bank Group kicked off on April 15.
The main ministerial meetings and events will take place April 17-19 with other events and activities taking place during the week, April 15-20.
At the heart of the gathering are meetings of the joint Development Committee and the IMF's International Monetary and Financial Committee, which discuss progress on the work of the World Bank Group and the IMF.
The Spring Meetings bring together central bankers, ministers of finance and development, parliamentarians, private sector executives, representatives from civil society organizations and academics to discuss issues of global concern, including the world economic outlook, poverty eradication, economic development, and aid effectiveness.