Washington, Apr 12: After witnessing a slow down, the Global Financial System (GFS) has emerged stronger and become more resilient in recent months, the International Monetary Fund (IMF) says.
In the latest issue of its semi-annual Global Financial Stability Report published April 11, the IMF says developments such as strong corporate earnings and continued increase in disposable personal income validate its September 2005 upbeat assessment of the G F S. "The financial, corporate and household sectors have created substantial financial cushions in practically all major financial systems," it says.
According to the report, many large, emerging markets have substantially improved their sovereign debt situations and domestic capital markets. They have also expanded and diversified their investor bases. Together, these changes have made emerging markets more resilient to external shocks, it says.
"The near term outlook is as good as it gets, or some would say, even better than that," said IMF Capital Markets Director Gerd Häusler, who presented the report in London.
The report says, however, that for the remainder of 2006 and beyond a more nuanced view is necessary because some cyclical challenges are emerging.
The IMF cited higher interest rates, higher inflation, worsening credit quality of debtors and an abrupt correction of global current account imbalances as major risks to the financial outlook.
In addition, Häusler cautioned, a human flu pandemic could have a "serious disruptive effect on international financial systems." He urged countries to do "all they can" to prepare for an avian flu outbreak to avoid serious economic and financial disruptions.
The report discusses key questions related to the identified risks. These include the degree to which conditions could change, how rapidly change could take place, how change might affect assets and their prices and how well financial systems are prepared.