So, where does the global financial system stand at the moment? Yes, we have witnessed improvements recently, but we are also observing a dichotomy between the economy and the financial system. While the global economic recovery has been continuing, financial stability is still at risk, because of a persistent lack of investor confidence in some advanced country sovereigns and their banking systems. In this post José Viñals reflects on the IMF’s updated assessment of global financial stability, including the key challenges that keep global financial stability at risk and the policies needed to meet these challenges.
Almost unnoticed amidst the difficulties in western Europe, the other half of the continent has begun to recover from the deepest slump in its post-transition period. In our fall 2010 Regional Economic Outlook, the emerging economies in central and eastern Europe are projected to grow by 3¾ percent this year and next—a relief after the 6 percent decline in 2009. But the boom years before the crisis had left much of the region addicted to foreign-financed credit growth, making it very vulnerable to a disruption in capital inflows. So, as the region emerges from the crisis, the big question is how do we avoid a repeat?