The latest semi-annual financial stability report published by the IMF points to a recovery. This recovery was thanks to the position of central banks in the concession of their Covid-19 valley. On the other hand, it indicates an abyss between the financial markets’ confidence and the stagnation of the global economy.
According to the IMF, support from central banks is essential for investors. The IMF added that asset prices may still plummet as markets and the real economy are out of alignment. Consequently, recovery may be hampered.
The result of the report presents a “V” shaped inactivity. Also, there was an imbalance of the S&P 500, which is the main thermometer on Wall Street. In other words, everything indicates a deep deceleration in the USA. That is why there is a difference between economic perspectives and risk pricing in financial markets.
Global economy: what we should expect
The number of assets acquired by central banks has doubled compared to that acquired in 2008, during the financial crisis. This amounts to $6 trillion (£4.75 trillion). As a result, stock prices returned to 85% of the value before the crisis. However, the IMF does not guarantee this optimistic scenario for the global economy.
The growth of Covid-19 cases puts pressure on stock prices, causing tension. The result of this is financial stress coupled with a recession in the economy, like never before.
Also, according to the report, the forecast for extension and support from central banks is optimistic, given that trade tensions remain. Besides, it is necessary to consider the possibility of global social unrest due to the increase in inequality.
The IMF said that the debt was at high levels. This was after more than a decade in which interest rates and the creation of money by corporate and domestic banks were low. In other words, the pandemic has made the global economy vulnerable, unstable.
According to the IMF, although the economies are highly indebted, the prognosis indicates slow economic growth. This scenario led to a peak in the delinquency of corporate bonds, considering the global economic crisis. Thus, the possibility of dissolving companies and families remains.
The IMF the impact of the pandemic was less due to the use of innovative tools. This cushioned the effect of the crisis that the global economy global economic system faces. But we cannot relax. The position must be cautious, as a fragile economy is also vulnerable.