Kuwait: Global Financial Stability Continues to Improve IMF

Financial stability has "continued to improve" since the last Global Financial Stability Report (GFSR) last October, the International Monetary Fund (IMF) announced

As reflected in Tuesday's World Economic Outlook (WEO), economic activity has gained more momentum amid accommodative monetary and financial conditions which the IMF explains have spurred hope for reflation.

"Longer-term interest rates have risen" and helped to boost the earnings of banks and insurance companies.

In the US, record highs were recorded in March on investors' hopes for tax reform, infrastructure spending, and regulatory rollbacks, it said.

Meanwhile, outside the US, markets have also risen steadily over the past six months, "driven in part by stronger growth expectations and higher commodity prices," said the report's executive summary.

But policy makers will need to create a series of legislations in order to sustain stronger growth and these improved financial conditions, it said.

These include invigorating economic risk taking, addressing domestic and external imbalances to enhance resilience in emerging economies, and to respond more proactively to structural issues in the European banking system.

However, there are still emerging threats that stem from political and policy uncertainty around the globe

In the US, "if the anticipated tax reforms and deregulation deliver paths for growth and debt that are less benign than expected, risk premiums and volatility could rise sharply, undermining financial stability" it said.

"A shift toward protectionism in advanced economies could reduce global growth and trade, impede capital flows, and dampen market sentiment." In Europe, a combination of political tension and slow progress on structural banking systems could "reignite financial stability concerns," it said.

Current policy proposals being discussed by the Trump administration could have a "significant impact on the corporate sector" across the globe.

"Healthy corporate balance sheets are a prerequisite for these policy proposals to gain traction and stimulate economic risk taking.

But reforms could also spur increased financial risk taking and, in some sectors, could raise leverage from already-elevated levels," it said Meanwhile for emerging market economies, they have "continued to enhance their resilience" through "lowering corporate leverage and reducing external vulnerability.

" Their growth is expected to improve and will be driven by gains for commodity exporters and positive growth spill overs from advanced economies.

"But overall financial stability risks remain elevated (in emerging economies) because global political and policy uncertainties are opening new channels for negative spillovers," the report noted.

The report argues that "it is crucial to get the policy mix right" and it "will require concerted and careful efforts by policymakers at the national and global levels.

" "Policymakers should adjust the policy mix to deliver a stronger path for long-term and inclusive growth while avoiding politically expedient but ultimately counterproductive inward-looking policies," it asserted American policy makers should "vigilantly monitor increased leverage and deteriorating credit quality.

" While emerging market economies should "address domestic vulnerabilities to enhance their resilience to external shocks.

"While regulation is never costless, neither is its removal; weakening regulatory standards comes at the cost of higher financial stability risks," the IMF asserted.