Global Financial Stability Report 2021 Reviews Economic Recovery

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Global Financial Stability Report 2021 covers all aspects of how extraordinary policy measures are easing pressures from global economy and needed to be done more for bringing global economy back to normal.

New Delhi (ABC Live India): The IMF launched the new edition of this year's Global Financial Stability Report 2021 today in Washington D.C.

The global economy is beginning to emerge from the economic shock caused by the COVID‑19 virus. The economy has benefited from extraordinary policy measures that have eased financial conditions, preventing a deeper economic downturn. But those actions may have unintended consequences. Valuations for risk assets have become stretched. Financial vulnerabilities have intensified. Continuing policy support remains necessary, but a range of policy measures are needed to address vulnerabilities and to protect economic recovery.

Global Financial Stability Report covers all aspects of how extraordinary policy measures are easing pressures from global economy and needed to be done more for bringing global economy back to normal.

Chapter 1 warns that there is a pressing need to act to avoid a legacy of vulnerabilities while avoiding a broad tightening of financial conditions. Actions taken during the pandemic may have unintended consequences such as stretched valuations and rising financial vulnerabilities. The recovery is also expected to be asynchronous and divergent between advanced and emerging market economies. Given large external financing needs, several emerging markets face challenges, especially if a persistent rise in US rates brings about a repricing of risk and tighter financial conditions. The corporate sector in many countries is emerging from the pandemic overindebted, with notable differences depending on firm size and sector. Concerns about the credit quality of hard-hit borrowers and profitability are likely to weigh on the risk appetite of banks.

Chapter 2 studies leverage in the nonfinancial private sector before and during the COVID-19 crisis, pointing out that policymakers face a trade-off between boosting growth in the short term by facilitating an easing of financial conditions and containing future downside risks. This trade-off may be amplified by the existing high and rapidly building leverage, increasing downside risks to future growth. The appropriate timing for deployment of macroprudential tools should be country-specific, depending on the pace of recovery, vulnerabilities, and policy tools available.

 Chapter 3 turns to the impact of the COVID-19 crisis on the commercial real estate sector. While there is little evidence of large price misalignments at the onset of the pandemic, signs of overvaluation have now emerged in some economies. Misalignments in commercial real estate prices, especially if they interact with other vulnerabilities, increase downside risks to future growth due to the possibility of sharp price corrections.

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