IMF: The economic recovery is facing a downward adjustment, and the three major markets are partially prosperous or failing

The International Monetary Fund (IMF) still expects the global economy to rebound strongly after experiencing the recession during the COVID-19 pandemic, but the organization has expressed concern that the recovery will lose momentum and become increasingly divided. The IMF also warned that as the Federal Reserve and other central banks withdraw their support during the epidemic, global stock prices and house values face the risk of a sharp drop.

IMF downgrades global economic growth forecast, says economic outlook is dangerously divided

The Washington-based IMF released the latest "World Economic Outlook" on Tuesday, stating that it now expects the world economy to grow by 5.9% this year, which is 0.1% lower than the July forecast, and it will shrink by 3.1% in 2020. The organization also maintained its 2022 forecast at 4.9%.





The IMF warned that threats to economic growth have increased, including mutant delta strains, tight supply chains, accelerating inflation, and rising food and fuel prices. The overall data also concealed substantial downward adjustments in some countries' forecasts, especially low-income countries where vaccine resources are still limited.

Gita Gopinath, head of economic research at the IMF, stated in the introduction of the report: “In general, the economic outlook faces increased risks, policy choices have become more complex, and dangerous differences between countries’ economic outlooks remain a major issue.”

Among the world's largest economies, the IMF lowered its 2021 US economic forecast by one percentage point to 6%, mainly due to supply constraints, but raised its 2022 forecast from 4.9% to 5.2%. ? Raise the euro zone's forecast for this year from 4.6% to 5%, and maintain the forecast for 2022 at 4.3%. ?

Japan, the United Kingdom, Germany, and Canada’s economic growth forecasts for this year have been revised downwards, but their forecasts for 2022 have been revised upwards. Low-income countries are expected to grow by only 3% this year, 0.9 percentage points lower than expected in July.

The International Monetary Fund warns that global stocks and property markets are facing "massive" selling risks

The International Monetary Fund also stated in its semi-annual financial stability report on Tuesday that the “local market boom and rising financing leverage” caused by the ultra-loose monetary policy may exit in a disorderly manner. With the tightening of credit, this may make the economy worse. Recovery is at risk.

Tobias Adrian, head of the IMF's capital markets department, said in an interview: "The shock may come from the central bank itself, because they are tightening policies faster than previously expected. Given the high valuation level, we are worried that there may be a large-scale sell-off." He said that the appearance of inflationary pressures is "different from ever before," which makes the calculations of central banks more complicated.



Adrian said that although the IMF agrees with the Fed and other central banks that the burst of inflation may be temporary, there is "considerable uncertainty" in this forecast. This raises questions about how policymakers will respond to the collapse of financial markets. The following are some of the financial stability risks highlighted in the IMF report:

The stock market 's rise in the past 18 months has made stock prices higher relative to economic fundamentals, and the phenomenon of "stock price imbalances" is widespread. Prices may “fall sharply in the event of a sudden reassessment of the economic outlook or unexpected changes in policy.”

The real estate market <br>the downside risk of housing prices seems to be great. In the worst-case scenario, the housing price decline in the next three years in advanced economies is estimated to be about 14%, and that in emerging markets is about 22%.

However, the IMF said that one bright spot is: Although the value of houses seems to be as high as before the 2007-2008 financial crisis, the state of the banking system is much better than then.

Cryptocurrency <br>Although the scale of the crypto asset market has surged to more than US$2 trillion, it is still small compared to the global stock and bond markets and has not yet posed a risk to the overall stability of the world's financial system.

But this market urgently needs regulation, especially stablecoins, to reduce potential risks in the future. The IMF stated that “due to limited or insufficient disclosure and regulation, the cryptocurrency ecosystem faces risks of consumer fraud and market integrity.”