Global financial meltdown: 'Perilous combination' of factors risks economic crash warns IMF
The IMF has warned of a ''perilous combination of vulnerabilities'
IMF/PA
A "perilous combination of vulnerabilities" risks plunging the global economy into recession, the International Monetary Fund has warned.
In its latest Global Financial Stability Report the finance agency warned that the failure of banks and businesses to prepare for a rise in interest rates had placed significant strain on markets.
It claimed that the risks to stability had increased "rapidly" over the past six months since its previous assessment.
The IMF warned the collapse of Silicon Valley Bank and Signature Bank in the US, as well as the loss of confidence in Credit Suisse was being felt across the world.
Pierre-Olivier Gourinchas, economic counsellor to the IMF, warned of the risk of a financial meltdown
IMF
"While risks are obvious in hindsight, the systemic implications of the existing weaknesses were largely unanticipated by policymakers and investors alike," the report said.
It warned that the should more banks collapse, the higher interest rates could cause a global recession.
Economists at the organisation suggested there was a one in seven chance of such an outcome.
Pierre-Olivier Gourinchas, economic counsellor to the IMF, said: "In such a severe downside scenario, global GDP per capita could come close to falling – an outcome whose probability we estimate at about 15 per cent.
"We are therefore entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner."
He added: "Once again, downside risks dominate. Nervous investors often look for the next weakest link, as they did with Credit Suisse."
The IMF's warning, alongside an updated World Economic Outlook that flagged many of the same risks, comes roughly a year after the US Federal Reserve embarked on the most aggressive course of interest rate increases in four decades.
Other central banks including the Bank of England followed suit, creating a synchronised global policy of monetary tightening aimed at lowering inflation.
Bank of England Governor Andrew Bailey has also raised interest rates
PAThe UK last month registered year-on-year inflationary increase of 10.4 per cent.
Interest rates in Britain are at their highest rate in over a decade at 4.25 per cent.
Meanwhile, in the US the FED announced a rise last month to a range of 4.75 per cent to 5 per cent.