IMF warns of broad ‘market correction’ from global trade tensions
5 per cent probability for emerging markets facing debt outflows of US$100 billion in the next year, it says
An escalation in global trade tensions, together with rising geopolitical risks and policy uncertainty in major economies, could trigger a broad-based correction in global capital markets and cause a sharp tightening of global financial conditions, the International Monetary Fund (IMF) warned on Wednesday.
“Should market participants start pricing in the possibility of protracted trade tensions, financial conditions could tighten significantly, increasing the tail risk to global growth and financial stability,” according to Global Financial Stability Report issued by the IMF at its annual meetings in Bali.
Based on the trade tariffs already in place, the organisation revised down its estimates of world growth this year and next by 0.2 of a percentage point to a still healthy 3.7 per cent. But growth could weaken significantly further if additional trade protectionist measures are put in place, it said.
It warned Chinese organisations with significant exposure to proposed US tariffs, including those engaged in machinery, capital goods, and automotive, have been disproportionately affected by the trade war. The benchmark Shanghai Composite Index has already plunged 17.7 per cent this year, making the Chinese equity market the second worst stock market worldwide, only next to the Greek market, which has fallen 18.4 per cent.
