April 18, 2018/IMF
EXECUTIVE SUMMARY
The global economic outlook has continued to improve, as discussed in the April 2018 World Economic Outlook, with the pace of economic growth picking up and the recovery becoming more synchronized around the world.
While still supportive of economic growth, global financial conditions have tightened somewhat since the October 2017 Global Financial Stability Report (GFSR).
Such a tightening reflects primarily the bout of equity volatility in early February and a decline in risky asset prices at the end of March following concerns about a wider escalation of protectionist measures.
Short-term risks to financial stability have increased somewhat relative to the previous GFSR, and mediumterm risks continue to be elevated.
Financial vulnerabilities, which have accumulated during years of extremely low rates and volatility, could make the road ahead bumpy and could put growth at risk.
Indeed, Growth-at-Risk analysis (described in Chapter 3 of the October 2017 GFSR) shows that risks to mediumterm economic growth, stemming from easy financial conditions, remain well above historical norms.
In advanced economies, stronger growth momentum and the firming of inflation have eased to some extent a key challenge facing central banks: maintaining the monetary accommodation required to support the economic recovery while addressing medium-term financial vulnerabilities. But the firming of inflation also brings risks.
For example, inflation may pick up faster than currently anticipated, possibly propelled by significant fiscal expansion enacted in the United States. Central banks may respond to higher inflation more aggressively than currently expected, which could lead to a sharp tightening of financial conditions.
This tightening could spill over to risky asset prices, bank dollar funding markets, and both emerging market economies and low-income countries, as discussed below. To minimize these risks, central banks should continue to normalize monetary policy gradually and communicate their decisions clearly to support the economic recovery.