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The baseline forecast is for growth to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5 percent in 2023 with advanced economy growth falling below 1 percent. Global headline inflation in the baseline is set to fall from 8.7 percent in 2022 to 7.0 percent in 2023 on the back of lower commodity prices but underlying (core) inflation is likely to decline more slowly. Inflation’s return to target is unlikely before 2025 in most cases.
The October 2017 Global Financial Stability Report finds that the global financial system continues to strengthen in response to extraordinary policy support, regulatory enhancements, and the cyclical upturn in growth. It also includes a chapter that examines the short- and medium-term implications for economic growth and financial stability of the past decades’ rise in household debt. It documents large differences in household debt-to-GDP ratios across countries but a common increasing trajectory that was moderated but not reversed by the global financial crisis. Another chapter develops a new macroeconomic measure of financial stability by linking financial conditions to the probability distribution of future GDP growth and applies it to a set of 20 major advanced and emerging market economies. The chapter shows that changes in financial conditions shift the whole distribution of future GDP growth.
Chapter 1 documents that near-term global financial stability risks have receded amid expectations that global disinflation is entering its last mile. However, along it, there are several salient risks and a build-up of medium-term vulnerabilities. Chapter 2 assesses vulnerabilities and potential risks to financial stability in corporate private credit, a rapidly growing asset class—traditionally focused on providing loans to midsize firms outside the realms of either commercial banks or public debt markets—that now rivals other major credit markets in size. Chapter 3 shows that while cyber incidents have thus far not been systemic, the probability of severe cyber incidents has increased, posing an acute threat to macrofinancial stability.
The October 2019 Global Financial Stability Report (GFSR) identifies the current key vulnerabilities in the global financial system as the rise in corporate debt burdens, increasing holdings of riskier and more illiquid assets by institutional investors, and growing reliance on external borrowing by emerging and frontier market economies. The report proposes that policymakers mitigate these risks through stricter supervisory and macroprudential oversight of firms, strengthened oversight and disclosure for institutional investors, and the implementation of prudent sovereign debt management practices and frameworks for emerging and frontier market economies.
Chapter 1 looks at the implications of the war in Ukraine on the financial system. Commodity prices pose challenging trade-offs for central banks. Many emerging and frontier markets are facing especially difficult conditions. In China, financial vulnerabilities remain elevated amid ongoing stress in the property sector and new COVID-19 outbreaks. Central banks should act decisively to prevent inflation from becoming entrenched without jeopardizing the recovery. Policymakers will need to confront the structural issues brought to the fore by the war, including the trade-off between energy security and climate transition. Chapter 2 discusses the sovereign-bank nexus in emerging markets. Bank holdings of domestic sovereign bonds have surged in emerging markets during the pandemic. With public debt at historically high levels and the sovereign credit outlook deteriorating, there is a risk of a negative feedback loop that could threaten macro-financial stability. Chapter 3 examines the challenges to financial stability posed by the rapid rise of risky business segments in fintech. Policies that target both fintech firms and incumbent banks proportionately are needed.
The audited consolidated financial statements of the International Monetary Fund as of April 30, 2019 and 2018
The April 2019 Global Financial Stability Report (GFSR) finds that despite significant variability over the past two quarters, financial conditions remain accommodative. As a result, financial vulnerabilities have continued to build in the sovereign, corporate, and nonbank financial sectors in several systemically important countries, leading to elevated medium-term risks. The report attempts to provide a comprehensive assessment of these vulnerabilities while focusing specifically on corporate sector debt in advanced economies, the sovereign–financial sector nexus in the euro area, China’s financial imbalances, volatile portfolio flows to emerging markets, and downside risks to the housing market. These vulnerabilities require action by policymakers, including through the clear communication of any changes in their monetary policy outlook, the deployment and expansion of macroprudential tools, the stepping up of measures to repair public and private sector balance sheets, and the strengthening of emerging market resilience to foreign portfolio outflows. This GFSR also takes an in depth look at house prices at risk, a measure of downside risks to future house price growth—using theory, insights from past analyses, and new statistical techniques applied to 32 advanced and emerging market economies and major cities. The chapter finds that lower house price momentum, overvaluation, excessive credit growth, and tighter financial conditions predict heightened downside risks to house prices up to three years ahead. The measure of house prices at risk helps forecast downside risks to GDP growth and adds to early-warning models for financial crises. Policymakers can use estimates of house prices at risk to complement other surveillance indicators of housing market vulnerabilities and guide macroprudential policy actions aimed at building buffers and reducing vulnerabilities. Downside risks to house prices could also be relevant for monetary policymakers when forming their views on the downside risks to the economic and inflation outlook. Authorities considering measures to manage capital flows might also find such information useful when a surge in capital inflows increases downside risks to house prices and when other policy options are limited.
Financial Soundness Indicators (FSIs) are measures that indicate the current financial health and soundness of a country's financial institutions, and their corporate and household counterparts. FSIs include both aggregated individual institution data and indicators that are representative of the markets in which the financial institutions operate. FSIs are calculated and disseminated for the purpose of supporting macroprudential analysis--the assessment and surveillance of the strengths and vulnerabilities of financial systems--with a view to strengthening financial stability and limiting the likelihood of financial crises. Financial Soundness Indicators: Compilation Guide is intended to give guidance on the concepts, sources, and compilation and dissemination techniques underlying FSIs; to encourage the use and cross-country comparison of these data; and, thereby, to support national and international surveillance of financial systems.
The world economy is experiencing a very strong but uneven recovery, with many emerging market and developing economies facing obstacles to vaccination. The global outlook remains uncertain, with major risks around the path of the pandemic and the possibility of financial stress amid large debt loads. Policy makers face a difficult balancing act as they seek to nurture the recovery while safeguarding price stability and fiscal sustainability. A comprehensive set of policies will be required to promote a strong recovery that mitigates inequality and enhances environmental sustainability, ultimately putting economies on a path of green, resilient, and inclusive development. Prominent among the necessary policies are efforts to lower trade costs so that trade can once again become a robust engine of growth. This year marks the 30th anniversary of the Global Economic Prospects. The Global Economic Prospects is a World Bank Group Flagship Report that examines global economic developments and prospects, with a special focus on emerging market and developing economies, on a semiannual basis (in January and June). Each edition includes analytical pieces on topical policy challenges faced by these economies.
The countercyclical capital buffer (CCB) was proposed by the Basel committee to increase the resilience of the banking sector to negative shocks. The interactions between banking sector losses and the real economy highlight the importance of building a capital buffer in periods when systemic risks are rising. Basel III introduces a framework for a time-varying capital buffer on top of the minimum capital requirement and another time-invariant buffer (the conservation buffer). The CCB aims to make banks more resilient against imbalances in credit markets and thereby enhance medium-term prospects of the economy—in good times when system-wide risks are growing, the regulators could impose the CCB which would help the banks to withstand losses in bad times.