One of the most comprehensive studies of the state of banking and markets since the financial crisis warns that “dangerous undercurrents” are a rising threat to the world economy.
The International Monetary Fund (IMF)’s Financial Stability Report says that although banks are far safer than they were in 2008 there are new risks. Trade tensions are growing, the IMF says, and inequality has risen.
Further moves towards a trade war could “significantly harm global growth”.Other threats to trade, such as a disorderly Brexit, could also “adversely affect market sentiment”, the IMF argues.
The US-based organisation says that a “no-deal” departure from the European Union could lead to fragmentation in European money markets, meaning that finance cannot flow around the system so efficiently. The body urges the Bank of England to be ready to provide more quantitative easing – money printing – if it is required.
In a separate report, the IMF said the UK had historically weak public finances with high-levels of debt and low-levels of assets. Britain sold off many of its assets in the privatisations of the 1980s and 1990s and also did not create a sovereign wealth fund from its oil revenues, which Norway did.
Of leading industrialised countries, only Portugal’s “net worth” was in a poorer position, the IMF said. That could mean that Britain will have to raise more taxes in the future because government-owned asset growth will not provide as much support to the economy.
The Financial Stability Report is the second time in 24 hours the IMF has published sober warnings about the state of global finance. –BBC