A Bumpy Road Ahead for the Global Financial System

2019-03-14T12:22:14-04:00April 18, 2018|

By Tobias Adrian

April 18, 2018

Versions in عربي (Arabic), 中文 (Chinese),  Español (Spanish), Français (French), 日本語 (Japanese),   Português (Portuguese),  Русский (Russian)

An unexpected increase in inflation could prompt the Federal Reserve and other central banks to raise interest rates faster than currently anticipated, roiling financial markets (photo: Tom Williams/CQ Roll Call/Newscom).

The current economic environment remains favorable, but short-term risks to global financial stability have increased in the past six months, as a result of a spike in stock-market volatility in February and continuing investor concerns about rising geopolitical and trade tensions. Looking ahead, the odds of a downturn remain elevated, and there’s even a small chance of a global economic contraction over the medium-term. […]

Managing Debt Vulnerabilities in Low-Income and Developing Countries

2019-03-14T13:28:16-04:00March 22, 2018|

By Tao Zhang

March 22, 2018

Versions in Português (Portuguese)  

Congested streets in Dhaka, Bangladesh. In a third of low-income countries, including Bangladesh, government deficits finance investment in much needed infrastructure (photo: Motoya Taguchi/Jiji Press/Newscom).

Government debt in some of the world’s poorest countries is rising to risky levels, a new IMF report shows. The report looks at economic developments and prospects among the world’s low-income countries, which account for a fifth of the world’s population but only four percent of global output. […]

Policy Actions to Sustain Growth and Guard Against Risks

2019-03-14T14:29:58-04:00March 15, 2018|

By Christine Lagarde

March 15, 2018

Versions in عربي (Arabic),  中文 (Chinese), Español (Spanish), Français (French),  日本語 (Japanese), Português (Portuguese)  Русский (Russian)

Even though the sun still shines on the global economy, there are more clouds on the horizon (iStock by GettyImages).

When the Group of Twenty finance ministers and central bank governors met last October, there was a sense of optimism about the global economic upswing and the opportunities for much-needed reforms.

When they meet again in Buenos Aires next week, their focus will be on the policies needed to protect this upswing against downside risks and bolster growth going forward.

The good news is that the growth momentum has continued to strengthen, involving three- quarters of the world economy.

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Tackling China’s Debt Problem: Can Debt-Equity Conversions Help?

2019-03-27T09:50:48-04:00April 26, 2016|

By James Daniel, José Garrido, and Marina Moretti

Version in 中文 (Chinese)

China’s high and rising corporate debt problem and how best to address it has received much attention recently. Indeed, corporate debt in China has risen to about 160 percent of GDP, which is very high compared to other, especially developing, countries.

The IMF’s April 2016 Global Financial Stability Report looked at the issue from the viewpoint of commercial banks and resulting vulnerabilities. Its analysis suggests that the share of commercial banks’ loans to corporates that could potentially be at risk has been rising fast and, although currently at a manageable level, needs to be addressed with urgency in order to avoid serious problems down the road.  Indeed the success in addressing this issue is important for China’s economic transition and, given its size and growing global integration, the world’s economy at large.

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Reviving Credit in the Euro Area

2019-03-27T14:03:21-04:00November 23, 2015|

by Jean Portier and Luca Sanfilippo

A stock in excess of €900 billion of nonperforming loans continue to clutter the European banking system, impeding economic growth. This issue remains a key challenge for policy makers. As we show in our latest Global Financial Stability Report, part of the solution to address this legacy is an upgrade in legal systems. Current inefficiencies—long foreclosure times and insolvency procedures—are a reason for the gap between the value of loans on bank balance sheets and the price investors are willing to pay. A reliable legal environment and an efficient judicial system maximize the value of nonperforming loans (NPLs), reduce the value gap and give banks greater incentive to get NPLs off the books. Our analysis, using time to foreclose as a proxy for effective insolvency regimes, shows there is a large upside for new lending capacity in the euro area (Chart 1).

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Securitization: Restore Credit Flow to Revive Europe’s Small Businesses

2019-03-27T17:28:01-04:00May 7, 2015|

By Shekhar Aiyar, Bergljot Barkbu, and Andreas (Andy) Jobst

If financing is the lifeblood of European small businesses, then the effect of the financial crisis was similar to a cardiac arrest. The flow of affordable credit from banks was choked off and small and medium-sized enterprises (SMEs) were hit hardest. Today, with bank lending still recovering from that shock, smart policy actions could open up securitization as a source of financing to help small businesses start up, flourish and grow.

SMEs are vital to the European economy. They account for 99 out of every 100 businesses, two in every three employees, and 58 cents of each euro of value added of the business sector in Europe. Improving access to finance would therefore not only revive small businesses, but also support a strong and lasting recovery for Europe as a whole.

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Managing House Price Booms in Emerging Markets

2017-04-14T01:49:29-04:00December 10, 2014|

Min ZhuBy Min Zhu

(Versions in 中文 and Español)

For the past decade, house prices have steadily increased in the vast majority of the 30 countries that make up the IMF’s House Price Index for Emerging Markets released today at a conference organized by the IMF and the Indian Institute of Management in Bangalore, India (Figure 1).

The index shows a lull in the aftermath of the global financial crisis, followed by an increase for nine consecutive quarters since 2012. This run-up—four times as fast as that in advanced economies—would be even more pronounced if the larger countries in the group such as China and India receive greater weight in the index.

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What a Drag: The Burden of Nonperforming Loans on Credit in the Euro Area

2017-04-14T01:59:15-04:00June 23, 2014|

By Will Kerry, Jean Portier, Luigi Ruggerone and Constant Verkoren 

High and rising levels of nonperforming loans in the euro area have burdened bank balance sheets and acted as a drag on bank profits. Banks, striving to maintain provisions to cover bad loans, have had fewer earnings to build-up their capital buffers. This combination of weak profits and a decline in the quality of bank assets, resulting in tighter lending standards, has created challenging conditions when it comes to new lending.

We took a closer look at this relationship and the policies to help fix the problem in our latest Global Financial Stability Report because credit is the grease that helps the economy function.

The stock of nonperforming loans has doubled since the start of 2009 and now stands at more than €800 billion for the euro area as whole (see chart). Around 60 percent of these nonperforming loans stem from the corporate loan book.

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