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IMF Warns of New Financial Crisis and Economic Instability, Calling Immediate Action
The International Monetary Fund (IMF) warned risks of a new financial crisis. In its latest half-yearly global financial stability report, the IMF calls for urgent action to address the current problems in the global economic landscape.
In the report, IMF revealed that risks for global financial stability have risen since October 2015, the last time IMF global economic health check. Heightened uncertainty and setbacks to growth has deteriorated the economic outlook until now. Other factors, including declines in oil and other commodity prices also contributed to the widespread instability.
The IMF also noted the immediate impact of the factors that in turn threaten global financial stability. "These developments have tightened financial conditions, reduced risk appetite, raised credit risks, and stymied balance sheet repair," the report says. The Guardian noted the warning that said over the next five years, global output could be cut by 4 percent.
IMF specifically highlighted the euro area as one of the main sources of market pressures in recent years. The report elaborated that the hardest hit banking systems within the eurozone have been those of Greece, Italy, and also Portugal, although to a lesser extent. Other banks, especially some large German banks have also been reported have "structural problems of excess bank capacity, high levels of NPLs and poorly adapted business models."
Along with the report and warnings, IMF also calls for action to address existing market problems. According to This Is Money, IMF is calling on leading central banks to take proactive steps. The IMF also noted that to help address the risks, an ambitious policy agenda is required to secure financial stability. Regulators are warned to take economic developments into account in its approach.
Public Finance International noted how the IMF sums up global economic challenges into main categories, including legacy issues in advanced markets and vulnerabilities in emerging markets. The report explained how both advanced and emerging markets are called to do their part in dealing with the financial stagnancy risks. Advance markets are called to deal with crisis legacy issues while emerging markets are called to strengthen resilience to global risks.
Economic problems in advanced and emerging markets could lead to a new financial crisis and economic stagnancy, warned the IMF in its new financial stability report. The IMF call forimmediate action to address economic problems in both advanced and emerging markets, particularly in the euro zone, where a solution for banks cannot be further postponed.