Global growth faces risks of slowdown: IMF

14/04/2016 05:46 AST

Risks to global financial stability are rising as growth slows and commodity prices fall, posing the danger of an eventual stagnation in credit that saps world output, according to the International Monetary Fund.

The gloomy mix of conditions “increases the urgency of a broad-based policy response, both individually and collectively, to raise growth, manage vulnerabilities and boost confidence,” the IMF said Wednesday in its semiannual report on financial stability.

Without such actions, market turmoil may recur, eventually increasing chances of a prolonged slowdown marked by financial institutions struggling with “impaired balance sheets for an extended period of time.”

The report echoes themes in Tuesday’s economic outlook from the IMF, which lowered its forecast for global growth and said the world has become more exposed to negative shocks.

The pronouncements set a downbeat tone as finance ministers and central bankers gather in Washington this week for spring meetings of the IMF and World Bank.

Renewed market turmoil could lead to a “pernicious feedback loop of fragile confidence, weaker growth, lower inflation, and rising debt burdens,” the fund said.”Financial soundness could become eroded to such an extent that both economic growth and financial stability are adversely affected in the medium term.”

The report laid out two paths for policy makers: Avert stagnation, and it could boost world output by 1.7 per cent by 2018 relative to baseline projections.

Fail to do so, and output could drop by 3.9 per cent relative to the baseline by 2021, the IMF said.

As in previous reports, IMF officials recommended government leaders around the world press ahead with structural reforms, continued monetary policy accommodation and “prudent fiscal support.”

While banks in advanced economies “have become safer in recent years,” they came under market pressure at the start of 2016, they said. The IMF urged the euro area to “urgently tackle” the issue of elevated nonperforming loans.

The Gulf Today