The IMF is watching a recession indicator Wall Street is obsessed with - and it could derail forecasts for a stronger global economy
Thomson Reuters
- The International Monetary Fund has revised up its forecasts for global economic growth.
- The Fund cited "increased global growth momentum and the expected impact of the recently approved US tax policy changes" for its fresh optimism.
- However, the rosier outlook came with a major caveat on financial markets, which the IMF warned could be at the risk of a confidence-shaking correction.
The International Monetary Fund's upgrade of its global economic growth forecast came with a major caveat: bubbly financial markets are at risk of popping, and that could take a toll on the expansion.
The Fund revised up its predictions for global economic growth in 2018 and 2019 by 0.2 percentage points to 3.9%, citing "increased global growth momentum and the expected impact of the recently approved US tax policy changes."
However, the Fund warned that the recent rallies across financial markets, ranging from stocks to corporate bonds, were looking frothy.
International Monetary Fund
The Fund was referring in part to the phenomenon of a flat yield curve, where rates on longer-term bonds, which are normally supposed to be substantially higher than their short-term counterparts to reflect the greater risk of lending over longer periods, slip closer to rates on short-term bonds.
Some investors and policymakers worry the trend, especially glaring in the US Treasury market, reflects expectations for weak investment returns over a prolonged period. An inverted yield curve, where long-term rates actually slip below short-term ones, has in the past been a reliable predictor of recessions.
"If global sentiment remains strong and inflation muted, then financial conditions could remain loose into the medium term, leading to a buildup of financial vulnerabilities in advanced and emerging market economies alike," the Fund added.
Risks will mount as long as "yield-seeking investors increase exposure to lower-rated corporate and sovereign borrowers and less creditworthy households."
- I spent $2,000 for 7 nights in a 179-square-foot room on one of the world's largest cruise ships. Take a look inside my cabin.
- One of the world's only 5-star airlines seems to be considering asking business-class passengers to bring their own cutlery
- Vodafone Idea FPO allotment – How to check allotment, GMP and more
- Rupee rises 3 paise to close at 83.33 against US dollar
- Supreme Court expands Patanjali misleading ads hearing to include FMCG companies
- Reliance Industries wins govt nod for additional investment to raise KG-D6 gas output
- Best smartphones under ₹25,000 in India
- RCRS Innovations files draft papers with NSE Emerge to raise funds via IPO